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Enough Budget Slashing, Let's Flip
A powerful solution to state deficits is to invert each state's tax structure.
Our country once had a more widely shared appreciation for both public services and the workers who provide them, including firefighters, teachers, and police officers. Today, however, state legislatures across the country are singing a very different tune. Instead of raising new revenue to protect those services and workers, states are slashing from their budgets the things that make our nation strong.
Cutting to get out of a deficit is like digging to get out of a ditch. It puts everything we value at risk. But it doesn't have to be this way.
What if there were a solution to state deficits that would raise significant revenue, encourage investment, and create jobs — without cutting vital public services? And what if the revenue required by such a solution could be generated solely by making tax systems as fair as most Americans think they ought to be?
The solution is simple: we need to turn states' fiscal status quos upside-down — literally.
United for a Fair Economy's new report, Flip It to Fix It: An Immediate, Fair Solution to State Budget Shortfalls, demonstrates that one powerful solution is to invert each state's tax structure. We calculated how much revenue state governments would raise if they flipped their current effective tax rates at the 50th income percentile and had the top 20 percent of income-earners in each state pay taxes at the same rate as the poorest 20 percent.
The results of this fiscal flip are quite dramatic. By turning each state's tax system on its head — from regressive to progressive — states would raise an additional $490 billion in revenue, easily wiping away the combined $112 billion state and local government budget shortfalls. The lake of red budget ink that has stained capitals across the nation would disappear overnight.
The report shows the extraordinary regressiveness of our current state tax structures. In plainer terms, low- and middle-income taxpayers are paying a greater share of their incomes in taxes than the wealthiest taxpayers in every single state in the nation. Relying on such an unsustainable structure is economically unsound and bad for our communities. And as several recent studies have pointed out, flipping them would be consistent with the majority of Americans' perception of "fair."
Achieving the "flipped" system would require significant changes in our state tax structures. For example, states would need to rely less on regressive sales taxes and raise more revenue from income taxes, in part by levying higher tax rates on the wealthiest Americans.
Of course, the biggest hurdle to achieving this inverted model is a lack of political will. But state-level elected officials can no longer ignore the fundamental roots of their deficit problems. Slashing essential public services and jobs will only drag us further away from achieving the kind of tax fairness that most taxpayers are already demanding.
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24 Comments so far
Show AllIf she is talking about income taxes, Ms Moriarty seems to have ignored states with a flat tax rate. If everyone pays, say 3.5% of their income in income taxes, how can the poor be paying a greater percentage of their income than the rich?
If deductions are factored in, or sales taxes, the picture changes, but they are not part of her metaphor of "flipping" the picture.
yes she was talking about sales tax too
I see that now. But in her attempt to keep the idea simple (Flip the structure), she left out the way to do it, which is make state income taxes progressive instead of flat.
Nice trying to play with numbers, but VERY poor execution. Percentages mean NOTHING in this instance. Look at it from a HUMAN standpoint. If someone as a single person is making $20,000 a year, making them pay the same percentage as someone who makes ten times that removes a far larger portion of their SPENDABLE INCOME. Get the difference? The percentage of income required just to survive by the lower income person is far higher than that of the richer person, and so it's a far greater burden on the lower income person. How do you NOT understand that?
If it costs $15,000 of that person's income just to pay his bills, then that leaves $5,000 left. Those taxes will have to come out of that, so just what is this person going to have left to have a life with? If the rich person has a life that costs him ten times as much as the lower income person, they still have $50,000 left. Take that same percentage out, and what will yo have left? A whole hell of a lot more. That person still has enough to have a life with.
And BTW, I have NEVER seen a flat tax proposal that was anywhere NEAR 3.5%. They all start at about 10%. So you would be taking even MORE from the poor than you think.
Finally, look at who it is that really supports the flat tax idea: Selfish jerks like Steve Forbes and his ilk, the ones who never earned a penny they have, and want to make sure they stay on top, never paying for a thing they use or cost the rest of us. It's an inherently selfish position thought up by those who have more than they will ever need but are not willing to share a thing with anyone else, or even contribute their fair share. If you support it then you haven't thought it out past the talking points the millionaires and billionaires want you to buy. It would help them make out like bandits (which they ARE), and screw the rest of us to the max. The rich SHOULD be paying for what they are using and doing to the rest of us, and they aren't. WE ARE.
Regarding my use of 3.5% as a flat tax, the author was talking about state taxes, and Indiana's is about 3.5% . You are thinking about the national flat tax estimates thrown out by people like Steve Forbes, whose "walking around" money is more than I ever made in a year.
A progressive tax actually requires the wealthy to pay more as a percentage of income based on the theory that they have more disposable income.
Even if the rates were flat, the scenario you outlined above would still be regressive since the taxes aren't levied against income, but rather taxable income.
Taxable income doesn't include interest from tax-free investments and includes deductions for things like home ownership and retirement plan contributions.
The whole point of the mostly right wing libertarian movement is to privatize the schools, to kill public education, to turn teachers into part time powerless peons and to destroy all the teachers' unions. Though it is mostly a right wing movement, the overwhelming majority of the politicians (D or R) are for charter schools and school vouchers. Obama's educational policies are a vile abomination.
This latest economic depression (caused by the Wall Street crooks) is an excuse to slash education, the social safety net and other essential services. Grover Norquist and Ayn Rand are cackling with delight.
Return the top marginal tax rates to what they were during the Nixon administration, close the loop holes and make the corporations pay their fair share of taxes.
I like what you say, but I would go farther. Return the tax rates to the Eisenhower rates, but eliminate the loopholes. And make it clear that if they offshore jobs, then ANYTHING they try to sell here will be met with a tariff that will dwarf ANYTHING they have ever seen. Eliminate the tax cuts and breaks that business has bought for itself with it's bribery and corruption, and return business to it's place of subservience rather than being the thing that calls all the shots. And remove all private money from elections, replacing it with a system of publicly financed elections. Then we might stand a chance at having a real country again.
Even further, let us deduct our interests from car sales, credit cards and uncap limits that St Ronnie the Asshole took away from us. The rich find all kinds of loops. Hell, even Congress has tax havens off shore. Or they don't pay at all. Dachele? Why isn't he in jail.
Nice article but another pipe dream. America is dead.
America is dead. Exactly. That's why the states should go their own ways, as the article says.
Another way for States to save $Billions would be for each to create a "State-owned Bank" that works for the public and not Wall Street.
Many articles on this issue are available at the following: http://publicbanking.wordpress.com/
Can the states enact progressive tax rates as an antidote to the stupid regressive policies of Wall Street DC? It's worth a try.
Look at Vermont. We were all disappointed with Oblahblah's health unsurance "reform", but Vermont's going to hoist the middle finger at the national government and create its own single-payer system. Good for them!
Which state dodged the stock market creash of 2007? North Dakota. They have their own state bank. Oregon is in the process of starting its own bank right now. To hell with B of A and Wells Fargo!
California has pretty much legalized pot, no matter what the DEA wants.
As the depression gets under way, disgust with the Wall Street-controlled national government will increase. The US will break up into regional entities and the states who have already started toward independence will be much better off.
Of course the rich, when faced with a fair tax code, will threaten to leave the state. Good! Leave. And take your gated communities, exclusive country clubs, and big ugly SUVs with you. Rich Americans are a bunch of tax cheats anyway who diminish the resources of any community they move into.
"Of course the rich, when faced with a fair tax code, will threaten to leave the state. Good! Leave. And take your gated communities, exclusive country clubs, and big ugly SUVs with you. Rich Americans are a bunch of tax cheats anyway who diminish the resources of any community they move into."
That's what I've said for 20 years when people talk about TIF's, tax breaks for job creation etc. "Don't let the door hit you in the ass, fair weather "friend." Those jobs migrate overnight to where ever the package is most favorable. That is what is destabilizing to communities. But debt enslavement can't work without the devastation that accompanies plant closures, shock capitalism etc. That's the true reason policies have promoted it. The capitalist only show up to exploit. It never ends up win/win; capitalists don't regard that as sustainable.
Progressive taxation hasn't driven out the rich from Scandinavia.
You may be correct that an emigration of high-paid workers can happen in the current "globalized" economic system, but with the end of cheap oil, "globalization" will quickly fall apart. The forces of globalisation and new technology are just about played out.
If skilled telecommunications workers from Ericsson are Leaving Sweden, where are they going? If they land in some god-forsaken American suburban sprawl, they might not last long, regardless of the low taxes. And just wait 'til they get to experience the Rube Goldberg-designed crap-pile that is the US "health care" system!
As for the "tycoons" and "rich hedge fund managers", we'd all be better off without them. Good riddance.
If one accepts the premise that a progressive tax code is the foundation of a sound fiscal policy, then overcoming those who obstruct it is the path to economic health. I don't advocate driving them out, as you say, but rather calling their bluff. If they are unwilling to pay taxes at a progressive rate, then they are free to leave. Perhaps they would be happier in Florida or Arizona.
There are rich people like Warren Buffett, for example, who advocate higher taxes on their own high incomes, but they are a rare exception.
All too often, the rich members of a community will push cuts in local services (they can pay for their own firefighters and medics and the butler can take the trash to the dump), cuts in public schools (little Lord Fauntleroy attends the Van Bilderass Academy), public parks (their estate already has a park) and other things that benefit the community just so that they can pay lower taxes.
I just don't buy into the myth that the wealthy are a blessing to the rest of the community.
Progressive taxation has always been one of the immediate solutions, but fails when the rich can buy politicians and make taxes regressive. Supreme Court conservatives in their Ciltizens United ruling make Big Money bribery the norm.
Direct democracy
Correct. Progressive taxation at the national level is a lost cause because of the corruption of all three branches of government. In fact, anything progressive at the national level is a lost cause. When you get down to it, the "nation" itself is fast becoming a lost cause.
What the article points out is that it's time for the states to progress on their own.
I don't blow off my big bazoo much on economics-related articles because for the past forty years or so, ever since I slammed into the brick wall of high-school freshman Honors Algebra and crumpled like a snot-soaked tissue, I find that I glaze over and grow numb during economic discourse.
At best, I can just about follow discussions, articles, or videos by down-to-earth numbers experts, e.g. Richard Wolff or Nomi Prins. But it all flies out of my head as soon as the "lesson" ends.
That disclaimer made, I am intrigued by the persistent insistence that a political body in a capitalist state-- state, nation, municipality-- literally can't afford to discommode, alienate, or "tax" the patience OR purses of the rich.
As an Economics Idiot or Dummy, I see this stance as a common-sense admonition against killing the geese that lay the golden eggs-- even if the geese get to keep and hoard most of the eggs while the rest fight over a handful of golden eggshell-shards.
But I'm skeptical of the precept that cosseting the rich, however distasteful in the abstract, is necessary to preserve a political entity's economic health. If nothing else, this "pragmatic" attitude validates a brutal, barbarous economic coercion or bullying.
Rather than a flock of "golden geese", I see the plutocracy of super-rich individuals and vested interests as malignant tumors that drain blood and vitality from the body politic.
That class thrives on the diagnosis that such tumors are "inoperable"-- that politicians don't dare to take a scalpel to them lest the patient die on the table.
And while it may be a figment of my economics-challenged intuition, I wonder if that argument isn't a self-confirming, self-perpetuating one that depends on a "Stockholm Syndrome" of specious consensus.
Even if I don't "get" many of them, haven't regular visitors to CommonDreams been reading a daily digest of articles establishing that the Amerikan body politic is being slowly and painfully starved to death, and that the prognosis is negative?
Is the path of wisdom really to eat each other, as we've been doing, instead of eating the rich? Must we persist in what amounts to blind or unqualified obeisance to the plutocrats? Is there an unwritten promise that they'll give us a glorious mass funeral in the event?
Once again you've nailed it, Obedient Servant. As someone who pretended to be a microeconomist for a living for six years, without having taken Econ 101, I think your perceptions give a quite accurate picture of the economic scene.
I know it irritates some people to hear me say that I am irritated by such articles as this one, but I can't help myself. Look at the title: Flip it! I can hear Devo in my head: Flip it! Flip it good! And echoes of bend and flip! from Legally Blonde. Oh my God! I just realized all I have to do is tell my senator that people like me don't like the tax laws!
Maybe I'm just not in the mood for perky.
Add to all this a negative income tax which would provide for those with the least and actually get money circulating as needed today.
"Police officers .... make our nation strong"?