With what could be an endless series of fiscal crises facing the federal government over the next few months, now is a good time to check where Congress stands in its deficit-reduction efforts. After two years, here’s the scorecard: middle-class families and the military, $1.5 trillion in budget cuts and reduced public investments over 10 years; wealthy households, $620 billion in fairer taxes; corporate America, nothing.
This means for every $2.50 in spending cuts, only $1 in new revenue has been raised. That is not a balanced and responsible plan. Before working families are asked to sacrifice even more - such as in cuts to Social Security, Medicare and Medicaid - the richest 2 percent must even up the score and corporations have to get in the game.
Despite what Republicans are demanding, the fiscal-cliff deal should not be the final word on taxes. Left unreformed by the last-minute, New Year’s Day “fiscal cliff” compromise were at least a trillion dollars in tax loopholes and special breaks wealthy individuals and big corporations use to whittle down their tax burden below that of many middle-class families - sometimes all the way down to zero.
The modest revenue increase contained in the fiscal-cliff deal was really only a down payment on true tax fairness – and to raise the money needed to reduce the deficit and invest in the economy. Over the next several months, we face a trifecta of fiscal issues even more challenging than the fiscal cliff: the impending $1 trillion in across-the-board spending cuts that kick in on March 1; the need to fund government operations when temporary federal spending authority expires; and the need to increase the government’s ability to borrow money to pay its bills.
Averting disaster without additional revenue will be no more possible next time than it was last time. Luckily, there are many promising ways to raise that revenue. Despite winning reelection pledging to raise tax rates on America’s wealthiest 2 percent, President Obama in the end agreed to raise rates on a mere 0.7 percent of the population, according to the Tax Policy Center.
An unfulfilled Obama priority is to make tax deductions fairer by reducing their value for wealthy taxpayers. For example, a hedge fund manager who claims a mortgage interest deduction gets a housing subsidy of 40 cents on the dollar for his million-dollar penthouse, but a typical middle-class person gets a subsidy of 15 or 28 cents for their house in the suburbs, depending on their tax bracket. Under Obama’s proposal, the subsidy would be capped at 28 cents on the dollar – affecting just the richest 2 percent. Capping the value of deductions at 28 percent would raise $520 billion over 10 years, according to the Joint Tax Committee.
Completely untapped by the fiscal cliff deal were hundreds of billions of dollars readily available from corporate tax reform. The share of federal revenue coming from corporations has fallen 75 percent during the past 60 years, according to the federal government. In 2011, at a time of record corporate profits, the average income tax rate paid by American firms fell to a mere 12 percent. Household corporate names like General Electric, Verizon and Wells Fargo have in recent, profitable years used fancy accounting tricks to pay zero in taxes, Citizens for Tax Justice found.
Corporations need to start paying their fair share starting with closing loopholes and eliminating tax-avoidance schemes using overseas tax havens, estimated to cost at least $100 billion a year in lost revenue, according to a U.S. Senate subcommittee. In a double insult to the American people, these same tax-avoidance schemes result in thousands of American jobs being off-shored to foreign countries.
A tiny sales tax on Wall Street trades – three pennies on each $100 – would raise another $350 billion while curbing dangerous financial gambling.
Budgets are about choices. The choice now is: Who pays? Who pays to bring down our deficits from this point on: the middle class and low-income Americans, who are sacrificing a lot; the wealthy, who are now contributing a modest additional amount given their resources; or profitable, multinational corporations that have not been asked to contribute a penny more?
Should we end tax subsidies for oil and gas companies, or make seniors pay more for Medicare? Should we ask billionaires to pay at least the same tax rates as bus drivers, or kick kids off of Head Start? Should we keep giving tax breaks to multinational corporations that ship jobs overseas, or invest in rebuilding roads and bridges to create jobs at home and make our economy more productive?
Each new fiscal deadline gives us a new chance to answer these basic questions. Let’s make the right choices.
Frank Clemente leads Americans for Tax Fairness, a coalition of more than 275 organizations.