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 News & Opinion

Ref. : Civic Events

Ref. : Arts & Education Events

Ref. : Public Service Notices

Travel
Books, Films, Arts & Education
Letters
Open Letters:

Ref. : Letters to the editor

Health Care & Environment

07.31 Giant Waves Observed In Arctic Ocean For First Time Ever, Scientists Warn Of Ice-Free Summers [0:59 video]

07.30 This Huge Corporation Is Tackling Climate Change—Because It's a Threat to the Bottom Line

07.30 How Much Cleaning Up Brownfields Is Really Worth

07.30 Worldwide water shortage by 2040

07.30 New Zealand’s 'dramatic' ice loss could lead to severe decline of glaciers

07.30 10 reasons to be hopeful that we will overcome climate change

07.29 Changing sea chemistry will hit Alaska communities hard

07.29 The Health Benefits of Trees

07.29 Delaying climate action will carry heavy economic cost, White House warns

07.29 Obama leasing millions of Gulf acres for offshore oil & gas drilling

07.28 Companies proclaim water the next oil in a rush to turn resources into profit

07.28 Why Warren Buffett Loves Renewable Energy

07.28 Report shows 1 in 3 Texans chooses renewable energy options

07.28 Half of Britain to be opened up to fracking

07.28 Wishful Thinking About Natural Gas: Why Fossil Fuels Can’t Solve the Problems Created by Fossil Fuels

News Media

07.31 Jill Abramson’s sad admission: “I don’t think the press, in general, did publish any stories that upset the Bush White House”

Daily FAIR Blog
The Daily Howler

Justice Matters
US Politics, Policy & Culture

07.31 Keith Alexander's Unethical Get-Rich-Quick Plan

07.30 Paul Ryan's Obsolete Thinking About Poverty

07.30 Democrats want to ban government contracts for companies that leave the U.S. to avoid taxes

07.30 NSA Spying Will Cost US Tech Titans Billions, and That's Just the Start

07.29 Hillary Clinton vs. Elizabeth Warren: Big Differences, Despite Claims To The Contrary

07.29 The State's Unwitting Attack on Parenting While Poor

07.28 My party has lost its soul: Bill Clinton, Barack Obama and the victory of Wall Street Democrats

07.27 Repeal Prohibition, Again

High Crimes?

07.31 'The world stands disgraced' - Israeli shelling of school kills at least 15 [2:48 video]

07.29 To Summarize the Israeli/Gaza War

07.28 As the Gaza crisis deepens, boycotts can raise the price of Israel’s impunity

07.27 Palestinian Resistance: an icon for those who long to live free

07.27 Wyden Ponders Release of CIA Torture Report Without White House Consent

Economics, Crony Capitalism

07.29 The black hole of US government contracting

07.27 PRIVATE EQUITY’S FREE PASS

07.27 The Typical Household, Now Worth a Third Less

07.27 Federal regulators let utilities gouge customers

International

07.31 The Orange Social Design Award: Help Us Make Our Cities More Liveable

07.31 Europe's Ground Zero: Fairy Tales and Fabrications in Eastern Ukraine

07.31 Cold Paradise: US Struggles with Wave of Underage Immigrants

07.31 THE CONSEQUENCES OF DREAMS

07.31 Just How Likely Is Another World War?

07.31 The Logic of Israeli Violence

07.30 EU and US impose sweeping economic sanctions on Russia

07.30 Gaza: another UN school hit during fierce bombardment

07.29 Israel Creates ‘No Man’s Land’ in Gaza, Shrinking Strip by 40 Percent

07.29 Huge blaze out of control in Tripoli battle as Libya slides into chaos

07.29 Weapons paid for by US are Missing in Afghanistan: Did they go to the Taliban?

07.29 Unlike Iraq, Iran, Libya, N. Korea, Israel has Impunity from Defying UNSC (Gaza Ceasefire)

07.29 The Wake-Up Call: Europe Toughens Stance against Putin

07.29 Gaza pounded by Israel after Netanyahu promises prolonged battle

07.29 When I served, the Israeli military was the most moral in the world. No more

07.28 Why Is Israel Losing a War It's Winning?

07.28 Stopping Putin: The Time Has Come for Europe to Act

07.27 North Korea Is Not Pleased: Dance Video Features Kim Jong Un [3:29 video]

07.27 Gaza death toll over 1,000 - Israeli toll up to 42 [videos, photos]

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: