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A Tax System that Targets Workers

Blogging Our Great Divide
June 04, 2015

by Bob Lord

We have taxes on the labor we do and another set of taxes on wealth.

Two years ago, my colleague Sam Pizzigati and I penned an op-ed, A Tax System That Targets Workers, that divided America’s tax system into two parts. We have taxes on the labor we do and another set of taxes on wealth.

Since 1980, we went on to point out, the overall rate for wealth-based taxes has been decreasing while the overall rate for labor-based taxes has been increasing.

At the same time, we added, an ever-increasing portion of the potential base for wealth-based taxes “faces no tax at all.”

Our rather obvious conclusion: As a nation, we’re riding an unsustainable trend.

Over the last two years, unfortunately, this overall trend has shown little sign of slowing down. And we’re starting to see the inevitable, ugly signs of the unsustainability to come.

At the state level, lawmakers in several more states have eliminated their inheritance tax. We’re now down to 19 states that impose a tax on great gobs of inherited wealth.

Lawmakers have slashed state corporate tax rates as well. And Arizona, in 2014, began to phase-in a state-level capital gains tax preference, joining eight other states that already do so. North Carolina is considering legislation to completely eliminate the capital gains tax on certain high-end assets.

States are also depending more heavily on regressive sales taxes to fund their budgets. Working families largely bear the sales tax burden.

At the federal level, meanwhile, we’re now seeing “bipartisan” support in Congress and from the White House for cutting corporate tax rates substantially. And the House recently passed a bill that would fully repeal the federal estate tax.

This repeal bill will likely be vetoed if it reaches the President’s desk. But that’s somewhat of a moot point. With Congress unwilling to close the gaping loopholes in the existing estate tax, we have, as a practical matter, no meaningful federal tax levy on grand fortunes.

Where’s all this leading?

In Arizona, the legislature has just yet again taken a meat cleaver to the state higher education budget, cutting $100 million — on top of a nearly 50 percent cut higher ed suffered in the aftermath of the financial crash.

In Kansas, with Governor Brownback aggressively eviscerating the state income tax, funding cutbacks are forcing some local school districts to shut their school years down early.

Other localities across the nation — think Ferguson, Missouri, for instance — are making up for the funding that used to come from tax revenues by doubling down on traffic fines and other penalties that fall largely on the poor and lower middle class.

This has produced shocking stats like this one: Over the past half-dozen years, as analyst Paul Buchheit reminds us, America has grown 60 percent wealthier. Over almost the same basic time span, our total number of homeless children has also jumped by 60 percent.

So here we are, two years later. We’re still reducing wealth-based taxes. We’re still increasing labor-based taxes, as well as other levies that burden the working people.

And the unsustainability of this drift is coming into much sharper focus. It’s not pretty.

Bob Lord, an Institute for Policy Studies associate fellow, practices law in Phoenix.

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