[PEN-L:6710] Re: Marginal Tax Rates

[Nathan Newman <newman@xxxxxxxxxxxxxxxxxxx>]

On Mon, 14 Oct 1996, Max B. Sawicky wrote:

> Nathan Newman wrote:
> >
> > My point is that if we fail to address regressive tax policy, raising the
> > minimum wage does little for a whole range of folks.
>
> The Federal personal income tax is not regressive.  Up to the top
> decile, the payroll tax isn't regressive either.

The EITC is part of the income tax and for working families making between
$11,500 and $26,500 (a not inconsiderable number of families), the
marginal tax rate for the income tax is around 35%---higher than for all
but the richest families.

Add in a payroll tax of 15.6% that is regressive (the rich don't pay it on
their new income and the poor do--the definition of regressive),
regressivity in the tax code is very real.

I didn't even mention adding in state sales and local taxes which are even
more regressive. A few years back, Citizens for Tax Justice estimated that
in many states, the poorest 20% of families are paying as much as 15% of
their income in such local and state taxes.

> By knocking the tax code, you appropriate the message of the Right
> but only strengthen them politically.  It makes it possible for them
> to play on the popular illusion that the income tax is regressive and
> that under the flat tax, the rich would really pay their fair share.

The Right doesn't play on an illusion in propounding the idea that a flat
tax is better.  They play on the reality of people's experience where they
pay heavy amounts of tax while knowing that the wealthy often  keep
most of their income after loopholes and deductions.

California passed Prop 13 largely because progressives sat back and denied
the tax burden of rising property rates on small homeowners.  Rightwingers
seized on that dissatisfaction and tied it to a massive tax protection for
commerical property as well.

If we don't deal with the regressivity of the tax code, the Right wing
will with a few simple ideas:

Payroll tax: Privatize social security and everyone keeps the tax in their
own retirement accounts.

EITC phaseout: abolish EITC in favor of non-refundable tax credits for
families

Income tax: flat tax with high standard deductions


Of course, these results will end up more regressive than problems in the
present system, but they will be addressing real dissatisfactions out
there.

Denying there is a problem with a tax code that everyone hates and sees as
irrational and unfair (in many cases for good reason) is a recipe for
losing big just as we lost during the Prop 13 tax revolt.

--Nathan Newman