My favorite politician Russ Feingold’s call to entreat the U.S. Senate’s Debt Super Committee to follow the “Buffett Rule” prompted this somewhat supportive diatribe.
If we are to keep our absurdly complicated and economically inefficient system of income taxes, then I urge you to follow Warren Buffett’s call to increase the progressivity of the income tax system, so that a greater percentage is paid by the highest earners, who are best able to shoulder the shared and necessary burden of funding the provision of public goods through government spending.
In our present era, the biggest issue of our economy is no longer the creation of wealth, but its distribution in a way that is both equitable and sustainable. Our growing income inequality combined with high unemployment and the increasing concentration of wealth is clearly neither equitable nor sustainable. History clearly demonstrates the undesirable ends this dangerous drift generates. A more progressive income tax would be a step toward reversing these trends and returning to a healthier economic environment with greater opportunity for all.
However, while I believe that while increasing income tax progressivity would generate an improvement in the economic well-being of the country, I think the a more efficient solution would be to scrap our current income tax system altogether, abolishing both corporate and personal income taxes and replacing both with a progressive personal consumption tax calculated (per Robert Frank’s proposal) as the difference between income and savings, with a high deduction matching baseline living expenses to exempt the poorest and progressively higher marginal tax rates for greater absolute levels of consumption to preserve the virtues of progressive taxation.
Such a progressive consumption tax scheme promises many benefits. As Robert Reich has argued, eliminating the corporate income tax eliminates the incentive for corporations to skew our political priorities by spend some of their concentrated wealth lobbying to change the tax code in their favor. From an economic perspective, the consumption tax incentivizes savings, which increases investment, thereby spurring innovation, which produces faster increases in productivity, which, in turn raises incomes. A progressive consumption tax with high marginal rates at the top end also decreases the incentive for luxury spending by top earners, the type of spending which serves to increase non-productive “spending for show” by each lower income bracket, as they struggle to “keep up with the Joneses” instead of saving or making better long-term investments such as better quality education for their children.
In this period of fiscal crisis, prolonged economic stagnation, high unemployment, growing income inequality and wealth disparity, I urge you to take tax reform seriously. Return progressivity to our tax system and do so in a way that maximizes the economic incentives for increasing investment, productivity, and growth.