December 16, 2005
Liberal America Should Embrace Tax Reform
By Froma
Harrop
"Progressive"
is a beautiful word in liberal parts of America. And nowhere does
it shine more brightly than when placed before "taxation."
Progressive taxation is the practice of taking a higher percentage
of income from rich people than from less-rich people. And the
federal income tax, with its higher brackets for higher incomes,
is regarded as the centerpiece of progressive taxation.
But the political
battle over the alternative minimum tax exposes a truth that liberals
have not entirely digested: The supposedly progressive income
tax is regressive for the blue states in which so many of them
reside. Furthermore, the Bush tax cuts -- aimed at taking pressure
off the income tax -- have eased some of the unfairness.
Big-hearted liberals,
your writer included, can agree that the rich should shoulder
more of the tax burden than the less fortunate. The problem is
defining who is rich.
Incomes are higher
in the blue states, but so generally is the price of housing and
everything else. A family making $90,000 in Nutley, N.J., can
barely maintain a middle-class existence. Yet by national standards,
that family is in the top 25 percent for income. Were this household
to move to Tulsa with its $90,000 income intact, it would be living
high. But the federal tax code makes no distinction between what
it takes to be middle class in Oklahoma and in New Jersey. As
a result, the high-income regions -- the generally liberal coasts
and upper Midwest -- get milked.
The alternative minimum
tax multiplies the regional inequities. Dubbed the blue-state
tax, it was created in 1969 to ensure that the top earners pay
at least some federal income taxes. (Back then, reports of millionaires'
paying no taxes scandalized Americans.)
The alternative minimum
tax was not indexed for inflation, so over the years, increasing
numbers of less-than-loaded families have been sucked into it.
Then, the Bush tax cuts greatly accelerated the trend. The perverse
upshot is that an estimated 15 percent of households with incomes
between $75,000 and $100,000 are now subject to the tax. The families
most at risk are those that have children, own their homes and
live in places with high taxes. (The tax does not allow deductions
for state and local taxes.)
Without congressional
action, 20 million Americans will get hit next year. And one out
of every eight affected households will be in New York City and
its suburbs.
Small wonder that
New York Sen. Chuck Schumer calls modifying the alternative minimum
tax "our No. 1 tax priority." Both the House and the
Senate have passed plans to deal with the situation. But Sen.
Majority Leader Bill Frist is holding the fix hostage to extending
tax breaks for dividends and capital gains (now that's a gift
to the rich).
Although the alternative
minimum tax is an enormous issue for blue-state politicians, Republicans
can't let it rampage. The tax might not hurt as big a slice of
their red-state constituents, but the ones it does are in the
economic strata they count on to vote for Republicans.
Conservatives
have been prancing around at the sight of liberals demanding that
a tax be muzzled. The Wall Street Journal editorial page
says it teaches blue-state politicians a lesson and urges them
to get with the Republican program to lessen reliance on the income
tax.
They ought to sign
on. There's nothing to stop liberal states from collecting some
of the taxes their top plutocrats no longer send to Washington.
Some are already doing it -- and spending the money on their own
priorities.
There's no doubt
that the exploding deficits will force Congress to find new revenues.
But that doesn't mean the blue-state middle class must go back
to being the packhorse for the nation. Liberals might take another
look at consumption taxes, which apply to spending rather than
income. They are progressive in that the rich buy more stuff than
the poor (and can no longer avoid taxes by hiding their income).
And even though the poor spend a bigger proportion of their earnings,
other things can be done to ease their burden.
Liberal America should
embrace tax reform that serves its interests -- and totally without
guilt. It's been carrying the load for far too long.
Copyright
2005 Creators Syndicate
