The debt ceiling debacle was temporarily resolved in early August with a deal that included the creation of a 12-member Congressional debt panel (officially labeled the Joint Select Committee on Deficit Reduction). This panel is charged with producing recommendations by this November to reduce federal budget deficits by at least $1.5 trillion over 10 years.
The Congressional debt panel will be under huge pressure from the corporate-driven Tea Party to limit its consideration only to cuts in federal government spending to achieve deficit reduction. This means average Americans, the poor, and minorities are the ones who will lose important programs designed for their benefit, while the tax giveaways for transnational corporations will continue. This is a recipe for social upheaval.
Some progressives argue that this panel of six Republicans and six Democrats, along with a President who cannot drive a hard bargain, guarantees gridlock and mounting frustration; however, now is a teachable moment for steady staters and other reformers to get on the offensive and present a larger economic vision. Those concerned with a sustainable economy should seize this opportunity to demand meaningful changes, such as basic reforms of the Tax Code. But make no mistake — it will be a big fight. The corporate-run Tea Party is intent on forcing the Republican Party to resist increases in anyone’s taxes, especially those of the well-to-do.
Three revenue changes are urgently needed: (1) cutting government handouts to polluters; (2) instituting revenue-raising measures that move us toward sustainability, such as a carbon tax and a transactions tax on international currency trading, and (3) cracking down on tax dodgers and offshore tax havens, which cost the Treasury an estimated $100 billion a year and which undermine the ability of governments to function.
Both state and federal tax codes provide enormous subsidies to polluters, thereby sending the wrong ecological price signal to the consumer. After reviewing more than $100 billion in subsidies to old energy technologies, Michelle Chan, director of international programs at Friends of the Earth, notes: “We are not going to get past reliance on yesterday’s technologies if we continue to subsidize them as if they were brand new.” But a bill in the Senate this spring to cut $20 billion in oil and gas subsidies was vigorously opposed by oil companies like Conoco Phillips who labeled the legislation “un-American.” Since when did subsidies to bloated corporations become the definition of “American?”
Fossil fuel barons, like the Koch brothers who underwrite the Tea Party, understand the enormous potential of solar, wind, geothermal, and conservation efforts to undermine their polluting industries. Thus, they seek to portray the removal of these special fossil fuel subsidies as a “tax increase.” Such flim-flam must be exposed.
Putting a price on carbon through a carbon tax or a fuel tax, could provide major revenue. The Carbon Tax Center provides details on such taxes. In addition to fundraising potential, a strong carbon price signal would decrease pollution from fossil fuel usage.
Two huge new revenue raisers could come from the financial sector and involve modest surcharges on groups that not only could readily pay them, but also richly deserve to pay them: major banks and their superrich, often tax-dodging global corporate and individual clients (James Henry and I have suggested these measures before).
The first is a version of the Tobin tax that would apply to wholesale foreign exchange transactions (not to retail customers). Given the astonishing $4 trillion per day of such transactions, a tax of less than a dime per $1,000 of transactions would yield at least $50 billion per year. A similar low marginal tax rate on all international financial transactions, including stocks, bonds, options, and derivatives, could readily collect at least twice that amount.
The second new revenue stream is an “anonymous wealth” tax: a modest 0.5% annual withholding tax on the estimated $15 to $22 trillion of liquid private financial assets — bank deposits, money-market funds, mutual funds, public securities, and precious metals — now sitting, almost entirely untaxed, in anonymous offshore accounts, trusts, and foundations.
This tax could raise between $25 billion to $50 billion per year. Such a tax is easy administratively because these “private banking” assets are heavily concentrated in the hands of a small number of leading banks and the largest recipients of “too big to fail” assistance.
The unwillingness of Republicans to look at revenues lost as a result of tax dodging is astonishing since the $100 billion they sought to cut is the figure estimated to be lost as a result of offshore tax havens. Fortunately Senator Levin has introduced legislation (endorsed by the Tax Justice Network) to close tax loopholes.
Many objectionable loopholes could be closed and thereby yield revenue. For example, obscenely wealthy hedge fund managers pay a lower rate on their income than regular wage earners.
Now is the time to put grassroots pressure on the media, especially in the states and districts of the 12 Senators and Representatives on the debt panel. Let’s seize the offensive and move the discussion of tax code changes under the framework of responsibility. Below are the members of the panel, in case you’re feeling motivated to start a conversation.
Democratic Senators: Patty Murray (Washington), Max Baucus (Montana), and John Kerry (Massachusetts).
Republican Senators: Jon Kyl (Arizona), Rob Portman (Ohio), and Patrick Toomey (Pennsylvania).
Democratic Representatives: James Clyburn (South Carolina), Xavier Becerra (California), and Chris Van Hollen (Maryland).
Republican Representatives: Jeb Hensarling (Texas), Dave Camp (Michigan), and Fred Upton (Michigan).