Sorry, but I can’t honestly resist another shot at the ‘fiscal cliff’. I know I’ve already written about it recently, but I’m not ready to let go quite yet. Let’s start with a human as hokey as the issue.
All those who agree that Donald Trump is certifiably loony, raise your hand. Just as I thought. So it may surprise you that Trump offered a proposal to raise a ton of money a dozen years ago that is currently getting some semi-serious consideration in these days of the fiscal cliff or whatever else you choose to call the contrived debt ‘crisis’ in Congress.
Trump’s tax idea was a platform plank in his brief Reform Party run for the Presidential nomination in 2000. He didn’t last long, blaming ‘infighting’ for his departure, nor did his tax suggestions, but in this “any port in a storm” environment, there are those at least willing to listen to Trump in a new light.
Here in a nutshell was Trump’s ‘Wealth’ tax solution to the debt problem. He would have imposed a one-time 14.25% tax on individuals and trusts with a net worth over $10 million. The net worth would be calculated minus the value of their principal residence. Such a move would have supposedly resulted in a $5.7 trillion dollar windfall according to ‘the Donald’s’ calculations at the time, while plumping up the Social Security Trust Fund and paying off all of that year’s national debt.
With the current fat cats certainly much richer than they were in 2000, such a program would cut a mighty swath through the 2012 indebtedness of $16 plus trillion.
A group calling itself the Patriotic Rescue America Contribution (PRAC) Plan sent Rachel Maddow an email endorsing the Trump solution, though like most Americans, famous or otherwise, she ignored their entreaties.
The idea is not new. The tax, variously called a “Wealth Tax”, “Net Worth Tax” and other descriptive titles, has been tried in several European countries and after a brief time, abandoned. According to a Washington Post article back in ’06, France experienced capital flight, brain drain, loss of jobs and a loss in tax revenue. There is also the U.S. Constitutional issue of a direct tax not being spread throughout the states.
Nonetheless, there is some support among the wealthiest among us who love the idea that such a tax could lower or eliminate assorted other taxes that the rich folks consider to be beneath them. In addition to inheritance taxes, Trump would have lowered capital gains, dividends and interest taxes substantially. He also recommended that corporations pay NO income taxes. The big boys have already beaten him to that one. Monster Multi-nationals have been cooking those taxes out of their books for years. Besides, what’s the point? Corporate taxes used to account for 27.3% of all federal revenue in 1955; the latest figure is 8.9%, a percentage I generously rounded up to 9% in my prior contribution on the subject.
Here’s what seems to be in play here. Remember, people like Trump are net takers, not net givers. So what the Wealth Tax would appear to accomplish for the super rich is the juke of ostensibly shoveling mighty mounds of cash for the commonweal; “here I come to save the day.” But you really haven’t tackled the problem because the one-time juke results in perennial tax breaks for the rich on the way to the debt-lowering goal. Just totally eliminating the inheritance tax is a trillion-dollar gift over time. So, for the long term, the net net of the Wealth Tax as cover for ducking other obligations greatly enhances the tax-haven coffers of the likes of Mitt Romney and his ilk and, as France discovered, actually lowers revenues. So you’re right back where you started from.
Yes, the Trump plan would not come without acres of strings attached, mostly to the benefit of the rich. Nonetheless if somebody does decide to offer up the plan (I don’t think that’s been done as yet), the Democrats should listen and possibly adopt a modest variation without most of the sweeteners. Maybe a much lower rate paid annually would work, though the politically practical side of me is convinced the trade-offs would be unacceptable unless they were very limited.
We are closing in on the 11th hour of the so-called Fiscal Cliff. The President should also lend an ear to the Republican option of closing loopholes to raise the revenue to be applied to debt reduction. Of course, there is no mention of what these loopholes are by the likes of Boehner and Co.The loophole specifics must be made crystal clear before any movement can be made on the issue. So, let me help tan-man out with some suggestions.
I believe the most egregious loophole is the plummeting of taxes levied on capital gains and interest and dividend income. Look at Romney’s tax bill of 13.9% in 2010 and 14.1% in 2011. Without that ‘loophole’ his taxes would have been twice that. If the Bush tax cuts are allowed to expire, the tax rate for the nation’s wealthiest would jump back to the pre-Bush level of 39.6% AND the top rate on corporate dividends hits the same number; 39.6. Attacking loopholes for the wealthy is certainly a legitimate alternative. America loses $1.3 trillion a year because of them. Unfortunately, there’s zero chance the Republicans are going to put those on the table.
If the top rates are left where they are and the loophole option is adopted that excludes the rich, Mr. and Mrs. Middle-class will pay through the nose.
The U.S. also loses a minimum of $100 billion to offshore tax-avoidance and has for many years. It could be twice that amount or more. Let’s start ferreting out these areas of questionable legality and collect the rightful taxes due.
This issue is a great challenge for the President even before he’s sworn in for his second term.