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

01.25 7 heinous lies “American Sniper” is telling America

01.25 American Sniper: anti-Muslim threats skyrocket in wake of film's release

01.23 'American Sniper' Is Almost Too Dumb to Criticize

Letters
Open Letters:

Ref. : Letters to the editor

Health Care & Environment

01.25 Obama's India visit: Hopes for clean energy and climate deals

01.24 Smog journeys: A short film about air pollution in China – video

01.24 The oceans are warming so fast, they keep breaking scientists' charts

01.24 Climate change inaction pushes 'doomsday clock' closest to midnight since 1984

01.24 Swedish school sheds light on dark days of winter

01.23 Life in the Sickest Town in America

01.23 Brazil’s worst drought in history prompts protests and blackouts

01.22 Gates foundation annual letter: what do you think of their vision?

01.22 Al Gore: oil companies 'use our atmosphere as an open sewer'

News Media

01.24 Joni, al-Qaida and rich folks: Fox News has a simple playbook for everything Obama says

Daily FAIR Blog
The Daily Howler

US Politics, Policy & Culture

01.25 The Tragedy of the American Military

01.25 Six ways the US is building a people-powered economy

01.25 The Republican abortion bill shows they still believe many women lie about rape

01.23 Removing the Social Security Tax Cap Would Benefit Most Workers [8:14 video & transcript]

01.23 Will Democrats Spoil Obama's Trade Initiatives?

01.23 Tom Engelhardt: More and War – The Tao of Washington

01.23 Republicans drop abortion vote after revolt by female House members

Justice Matters

01.23 Obama Has Sentenced Whistleblowers to 25 Times the Jail Time of All Prior U.S. Presidents COMBINED

High Crimes?

01.22 CIA torture report architect denounces Republican attempt to claw back copies [Like Texas 'history' books, Republicans try to hide truth about Bush-Cheney torture]

Economics, Crony Capitalism

01.25 The Davos oligarchs are right to fear the world they’ve made

01.25 All economic activity needs a moral compass

01.24 America's Losing the Currency War

01.23 KKR’s Botched Document Cover-Up Reveals Washington Public Pension Fund Cronyism

01.22 US tech giants launch fierce fightback against global tax avoidance crackdown

International

01.24 How the CIA made Google: Inside the secret network behind mass surveillance, endless war, and Skynet—part 1 [part 2]

01.24 Greece’s solidarity movement: ‘it’s a whole new model – and it’s working’

01.24 Democrats rally around Obama amid furore over Netanyahu Congress visit

01.23 Terror from the Fringes: Searching for Answers in the "Charlie Hebdo" Attacks

01.23 Guantanamo Prisoner Diary: 'We're Gonna Teach You About Great American Sex'

01.23 #notinmyname: German Muslims Fear Backlash after Paris Attacks

01.23 Death in the city: the grisly secrets of dealing with Victorian London's dead

01.22 Obama to GOP: More Iran sanctions lead to War (& 7 other Foreign Policy points in SOTU)

01.22 Netanyahu Imported by GOP to ensure Iran War

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: