Newspaper logo  
 
 
Print view: Reagan's Tax Shock: Time for the Encore
ECONOMIC ANALYSIS:

Reagan’s Tax Shock: Time for the Encore

by Gerald E. Scorse
Buying stocks doesn’t grow jobs or grow the economy, it grows portfolios.

Wall Street has always claimed that income from investments is entitled to lower taxes than other income. As The Street sees it, investments in the market deserve tax breaks because they grow jobs, grow companies, and stimulate the economy.

A tax system tied to that belief is a major driver of rising income inequality. Congress could bend the curve by restoring Ronald Reagan’s 1986 shock: equal taxes on income from wealth and income from work. The idea is back and thriving. First, let’s take a hard look at the Wall Street claim.

Buying stocks doesn’t grow jobs or grow the economy, it grows portfolios. The money that’s invested doesn’t go to companies, it goes to the prior owners of the stock. In fact, through dividends and stock buybacks, shareholders take money out of companies rather than put it in; they’re a drain on company funds, not a source.

There’s no real reason for preferential taxes on investment income.

Billions of shares trade hands every business day. Except for the tiny number that raise money for the issuing companies, it’s all white noise. There’s no real reason for preferential taxes on investment income.

President Reagan tacitly admitted as much with his signature Tax Reform Act of 1986, which levied equal taxes on capital gains, dividends and ordinary income such as wages. At the signing ceremony, he called the bill “a sweeping victory for fairness” and “the best job-creation program” ever to come out of Congress. Equal taxes soon reverted to unequal, and became more so with the Bush tax cuts of 2001 and 2003 (true, new levies in 2013 did reduce the spread for the most affluent.) Today, though, Reagan’s policy is on the rebound.

In 2010, when the federal deficit preoccupied all the Very Serious People in Washington, two bi-partisan groups looked at ways to put the nation’s fiscal house in order. The first was a Congressional body, President Obama’s debt commission, commonly known as Simpson-Bowles; the second was the Bipartisan Policy Center, a top D.C. think tank. The blueprints they drew up differed in many specifics, but in the large not so much. Both called for lower marginal rates and a broadened tax base, the pillars of the 1986 reform. Both broadened the base in large measure, as Reagan did, by taxing all income at the same rates.

Three billionaires say aye, each from a distinct vantage point.

Warren Buffett long ago famously asked why he should pay taxes at a lower effective rate than the secretaries in his office. The hedge fund guru Stanley Druckenmiller has spoken out at college campuses about America’s fiscal stacking of the deck against the young, in favor of the elderly. Tax favors for dividends and capital gains help fuel the unfairness, Druckenmiller says.

Pimco co-founder Bill Gross is the latest equal-tax convert; he published his epiphany in the investment giant’s November newsletter. Gross wrote with feeling about “the plight of labor.” He talked about his wealth having piled up on the backs of workers, about guilt setting in. Finally, this coda: “The era of taxing ‘capital’ at lower rates than ‘labor’ should now end.” Gross also said he had company: Stanley Druckenmiller and Warren Buffett.

President Obama grasps the damage being done by America’s runaway income inequality. As he said in early December, “it challenges the very essence of who we are as a people.” It also challenges him. The president should urge the nation toward greater equality, and make the case for equal taxes on income from wealth and income from work.

It isn’t about redistribution, it’s about tax fairness. Americans understand fairness, as The Gipper well knew.


Gerald E. Scorse is a tax activist. He writes op-eds and badgers politicians.

Copyright 2014 Gerald E. Scorse



Copyright © 2014 The Baltimore News Network. All rights reserved.

Republication or redistribution of Baltimore Chronicle content is expressly prohibited without their prior written consent.

Baltimore News Network, Inc., sponsor of this web site, is a nonprofit organization and does not make political endorsements. The opinions expressed in stories posted on this web site are the authors' own.

This story was published on January 7, 2014.

 
Local Gov’t Stories, Events

08.15 RIDE FOR THE OVERRIDE

Ref. : Civic Events

Ref. : Arts & Education Events

Ref. : Public Service Notices

Travel
Books, Films, Arts & Education

09.24 Talking with Strangers: A Journey to the Heart of the Right

Letters

Ref. : Letters to the editor

Health Care & Environment

09.24 How to reduce the risks of carmageddon

09.24 Existing coal, oil and gas fields will blow carbon budget – study

09.24 Dutch parliament votes to close down country's coal industry

09.24 Trump to Fossil Fuel Execs: 'You Will Like Me So Much'

09.24 Earth Could Reach Critical Climate Threshold in Decade, Scientists Warn [we'll all die if denial idiocracy prevails]

09.23 Soil carbon storage not the climate change fix it was thought, research finds

09.23 The New, New Climate Math: 17 Years to Get Off Fossil Fuels, Or Else

09.23 Tribes Across North America Unite in 'Wall of Opposition' to Alberta Tar Sands

09.23 Air Pollution Is Linked to a Diabetes Marker

09.23 Ratifiying the Paris agreement will be a major step but must be the first of many

09.23 Farming on the edge: the Indian salt producers coping with 48C heat

09.23 100 countries push to phase out potentially disastrous greenhouse gas

09.23 Burger King and KFC called out for lagging behind on antibiotic-free meat

09.21 Drugmaker raises price of acne cream to $10,000 a tube [Only in America, land of opportunity...]

09.21 The devastating insulin scandal big pharma is hiding from you [Only in America, land of opportunity...]

09.21 375 top scientists warn of 'real, serious, immediate' climate threat

09.21 UN agrees to fight 'the biggest threat to modern medicine': antibiotic resistance

News Media Matters

09.22 What Donald Trump and Hillary Clinton aren’t talking about: Policy discussion is missing from the campaign

Daily: FAIR Blog
The Daily Howler

US Politics, Policy & 'Culture'

09.24 Channeling Sanders, Clinton Proposes Whopping Billionaire Estate Tax [worldwide normalization of taxes—with full visibility of income and wealth for fairest taxation—must be achieved. Automation is capable of eliminating 45% of jobs NOW, and it will happen rapidly to realize profits.]

09.24 Thousands of Verizon customers are battling data over-limit fees: Money Matters

09.24 HILLARY CLINTON: DEAD-ON COMIC, DULL POLITICIAN

09.22 IACP developed a 10 question survey on pressing criminal justice issues for the 2016 U.S. presidential nominees

09.22 Lies and Lapses on the US Campaign Trail

09.22 Mike Pence, a heartbeat away from the presidency? Now that’s frightening

09.22 Bernie Sanders: The ‘Nation’ Interview

09.22 Whom Should We Blame for Our Deranged Democracy?

09.22 Make the Public Health Insurance Option Central to the 2016 Campaign

09.22 Trump's Giant Conflict of Interest Just Got Bigger

09.22 Meet the Horde of Neo-Nazis, Klansmen, and Other Extremist Leaders Endorsing Donald Trump

09.22 Clinton hasn't won over millennials. And no, sexism isn't to blame

09.22 The Trump Foundation: what's known is shocking. We need to know more

09.21 Campaign Was Not Radical, Says Sanders, Just 'What Most Americans' Want

09.21 Top Six US Problems worse than Terrorism

09.21 Millennials Arrested at Paul Ryan's Office Denouncing GOP's Politics of Hate

09.21 Calling Syrian refugees like me Skittles would be funny if it weren't so cruel

09.21 Trump's plan to seize Iraq's oil: 'It's not stealing, we're reimbursing ourselves' [giggle giggle]

Justice Matters

09.21 SEC Probe Called Possible 'Moment of Reckoning' for Exxon's Climate Crimes

09.21 Warren Skewers Wells Fargo CEO for Greed and 'Gutless Leadership' [8:57 C-Span video]

High Crimes?

09.22 Stopping the War on Children

09.21 Russian planes dropped bombs that destroyed UN aid convoy, US officials say

Economics, Crony Capitalism

09.23 Carney backs green finance to cut emissions and boost growth

09.23 Helicopter money is back in the air

09.23 Wells Fargo's toxic culture reveals big banks' eight deadly sins

09.21 The Coming European Debt Wars

09.21 TTIP 2.0? New Leak Exposes Threats of Lesser-Known TISA Trade Deal

International

09.24 Syria bombings leave 1.75 million without running water in Aleppo [videos]

09.24 Larry Sanders, Bernie's Brother, to Fight for David Cameron's MP Seat

09.24 THE COMING CRISIS IN MOSUL

09.23 Eugene V. Debs and the Urgent Need for a New Anti-War Movement

09.23 A Single Migration From Africa Populated the World, Studies Find [we're all distant cousins]

09.23 Obama Puts Syria at Arm’s Length as Carnage Drags On

09.23 The Best News You Don’t Know

09.22 "Indifferent to Yemen's Misery," Senate Approves Massive Saudi Arms Deal [Cardin and Mikulski voted “Yea”]

We are a non-profit Internet-only newspaper publication founded in 1973. Your donation is essential to our survival.

You can also mail a check to:
Baltimore News Network, Inc.
P.O. Box 42581
Baltimore, MD 21284-2581
Google
This site Web
 

Public Service Ads: