Don't Forget to Raise Taxes

When we talk about combating America's crisis of inequality, we talk about raising the minimum wage, curbing CEO pay, supporting organized labor, and other progressive ideas. Let's not allow the simplest fix of all to get lost, though: raising taxes.

A progressive tax code is the simplest and most direct way of addressing economic inequality. It's so simple—and so thoroughly politicized—that we sometimes neglect to talk it up, or assume that rich people and corporate interests will always find loopholes to avoid paying their fair share.

Not so. The tax code can be whatever we want it to be. And it can be wielded directly against economic unfairness. Here is an excerpt from an op-ed today by former Treasury secretary Larry Summers. Many progressives dislike Larry Summers. That does not matter. This is fairly straightforward:

It is not enough to identify policies that would reduce inequality. To be effective, they must also raise the incomes of the middle class and the poor. Tax reform would play a major role here. Beyond its adverse effects on economic efficiency, today's tax code allows a far larger share of the income of the rich to escape taxation than the poor or middle class. For example, last year's stock market growth represented an increase in wealth of about $6 trillion, with the lion's share going to the very wealthy. It is unlikely that the government will collect as much as 10 percent of this given the capital gains exemption, the ability to defer unrealized capital gains and the absence of any tax on gains on assets passed on at death.

Rich people make their money from investments. Raise tax rates on investment income, and you go a long way towards addressing inequality. Raising and properly enforcing death taxes on huge fortunes can also help. These measures have the advantage of not interfering with the precious Invisible Hand of the Free Market. They let the free marketeers make as much as they want, then take it on the back end.

The sooner people understand how much of society's wealth is funneled to a tiny group of people who do nothing but sit on huge piles of money that throws off revenue that is taxed less than money earned from actual work, the sooner raising taxes will become a popular idea.

[Pic: Flickr]