Capital Commentary is the weekly current-affairs publication of CPJ, written to encourage the pursuit of public justice.


Tax Reform and Compromise


Ted Williams III

10-28-2011


October 28, 2011
by Ted Williams III

Recently, while I was picking up my 5- and 3-year-old daughters from their school, I noticed a poster on the wall. The poster encouraged the kids to share and compromise when they had disagreements with one another, and my attention immediately turned to the American political system.

President Obama’s Jobs Act recently met defeat in the US Senate, primarily due to opposition to raising taxes on the top 1%-2% of the wealthiest Americans. The airwaves have been full of accusations of class warfare and socialism. In response, President Obama has attempted to convince the American people that taxes would remain the same for 98% of the population.

This battle is one that has been fought for years in American politics. To reject heavy taxes is as American as apple pie, and millions want reform of our current system to reduce our tax burden.  Yet is this burden as significant as many believe? In reality, the United States has a relatively low tax rate compared with other developed nations. Among OECD nations (Organization for Economic Cooperation and Development) only Mexico, Turkey, Korea, and Japan have lower rates. The US tax rate stands at 28%, as a percentage of GDP, while the average of OECD nations is 36%. In many European nations, rates are higher than 40%. Where the US may have room for reform is in the kinds of taxes we collect. We collect fewer consumption taxes, only 17% of all tax revenue, than any other OECD nation, yet our reliance on income taxes is among the highest at 36%. The average among these nations is 25%. Corporate income taxes make up just 12% of all US tax revenue.

Consequently, reformers of the American tax code are correct in one vital area. Income taxes may be too high. Herman Cain’s 999 plan, which proposes a flat 9% business, consumption, and individual tax, may appear to be a gimmick in the eyes of most. Yet the concept of the flat tax is not unreasonable. It aims to simplify an extremely complicated tax code and provide an increased level of equity to a system many see as confusing and unfair. 

In order to meet the government’s increased obligations for programs like Social Security, Medicare, Medicaid, and defense we must consider additional sources of revenue. Relying on national consumption taxes while reducing individual income taxes may be a way to appease both those who desire lower individual taxes and those who see government spending as increasingly necessary. Additionally, ending various corporate loopholes and subsidies, as proposed in Obama’s Jobs Act, could yield billions in additional revenue. Without some level of serious reform, the United States will face serious economic consequences. Strapped with a national debt of almost $15 trillion dollars and rising costs in a variety of sectors, the US will face European-like financial challenges without drastic change. Standard and Poor’s’ recent downgrading of the US credit rating provides ample evidence that our current track is unsustainable. A variety of measures must be taken, including re-evaluating spending, acquiring additional revenues, and provoking economic growth.

In this conversation, we cannot blindly repeat extremist arguments on either side of the political aisle. Those who advocate a complete rejection of vital government services are as irresponsible as those who bemoan capitalism itself. A civil society has a host of governmental obligations including those to protect the poor, the elderly, the young, and to defend its homeland. Additionally, the free market has served this nation well in building a collective lifestyle that is the envy of much of the world. For all of its faults, the US still accepts more immigrants than any nation on earth, in large part because of free markets. Tax policy in the United States must realistically reflect the totality of government’s commitments.

Tax reform in America is necessary. But it is also necessary that as Americans, we must acknowledge our responsibility to both protect certain populations and to create conditions for individual prosperity. I often discuss with my students the antithetical relationship between democracy and capitalism. One values community and equality, while the other values individualism and competition.  The challenge of creating any viable social policy, including tax policy, is working within this reality. Reconciling these forces will take more than tired partisan arguments to create tax policies with which we all can live. Yet as my daughters are learning, nothing can be accomplished without a commitment to sharing and compromise.

—Ted Williams III is a Professor of Political Science at the City Colleges of Chicago.

 



“To respond to the author of this Commentary please email: capcomm@cpjustice.org
Capital Commentary is a weekly current-affairs publication of the Center for Public Justice. Published since 1996, it is written to encourage the pursuit of justice. Commentaries do not necessarily represent an official position of the Center for Public Justice but are intended to help advance discussion. Articles, with attribution, may be republished according to our publishing guidelines.”