Use tax policy to promote socially-responsible behavior

What Social Justice? Change the Tax Code

By FRANK CARINI, ecoRI

Republicans cut them in time of war. Democrats view them as a panacea. And both parties have designed a convoluted system that allows the very rich to pay a lower tax percentage than everyone else — and there appears to be little chance this inequitable practice will be remedied anytime soon.

In fact, it’s no secret that many of the taxes that have been spewed forth by D.C. lawmakers for decades as ways to help the middle class are nothing more than a charade.

For example, as economist Joseph Stiglitz documents, the mortgage interest deduction provides more assistance to rich homeowners than to the middle class, because it “encourage excessive housing consumption and excessive borrowing — not surprising, given the political clout of our banks.”

Stiglitz, who received the 2001 Nobel Prize in Economics, notes in a white paper recently published by the Roosevelt Institute that the U.S. government provides more housing assistance to the rich through an elaborate tax system than it does to the poor through public housing.

Our rigged tax system helps explain why middle-class incomes, adjusted for inflation, have barely increased in decades. From 1978 to 2013, a typical worker’s compensation rose just 10 percent. In that same 35-year period, CEO compensation, adjusted for inflation, increased 937 percent, a rise more than double stock-market growth, according to the Economic Policy Institute.

Taxes are an integral part of a well-functioning economy, and society. After all, this country’s two most successful and innovative industries at the moment — high tech and biotech — were propped up by government research and funding.

In fact, a well-designed tax system, which this country certainly doesn’t have, raises more than money. It reduces inequality — our current system fosters it — and improves economic efficiency.

But as Stiglitz notes, the planet’s richest person, Bill Gates, earned his fortune through a company that has “engaged in anticompetitive practices in Europe, America and Asia.” The creation of Gates' empire isn’t a free-market success story.

Billion-dollar companies, such as Apple and Google, that made their fortunes in America with help from taxpayer dollars now dodge U.S. taxes by claiming, according to Stiglitz, “that their immense profits originate not from the ingenuity of their American researchers or the seemingly limitless demand from American consumers for their products but from a few employees scattered across low-tax jurisdictions, such as Ireland.”

It’s time we start spreading our tax responsibility fairly and equitably. It’s time we get creative, and we could start by switching taxes away from things we like (employment and income) to things that are costly to society but make industry and a select few individuals rich (carbon and speculation).

Multinational oil, gas and mineral companies, for example, don’t actually own the resources they extract from publicly owned land, and they pay just a fraction of the true societal cost to harvest them — while the huge profits reaped at the top never seem to trickle down. Stiglitz says the best way to solve this inequity is a fair and efficient auction that would guarantee the public a full return on these shared resources.

Taxes should encourage activities that are of widespread benefit and discourage those that are costly to society, according to Stiglitz. He notes corporate taxation should encourage companies to invest and create jobs here by lowering taxes on those that do so relative to those that do not.

He says well-designed financial-sector taxes would increase the industry’s performance efficiency and induce it do better what it’s supposed to do. We shouldn’t socialize a business sector’s losses — think Big Bank bailouts in the face of the most-recent financial crisis — but allow that same industry to privatize its huge profits.

There are plenty of changes we could make to the tax code to better raise the necessary money to fund a fair and equitable society.

Lower the sales tax on electric, hybrid and compact cars that get, say, 45-plus miles per gallon. Heavily tax those who drive gas-guzzling sport-utility vehicles. Tax them again if their SUV is named after a tree (Sequoia), territory (Yukon) or lake (Tahoe).

Lower the sales tax on sailboats, canoes, kayaks, mopeds, bicycles, skateboards, Rollerblades and surfboards. Jack up the tax on powerboats, snowmobiles, Jet Skis, all-terrain vehicles and leaf blowers.

Revoke the meals tax at restaurants that locally source more than, say, 50 percent of their menu. Stop subsidizing Big Ag, and instead use that money to incentivize sustainable farming practices, urban farms and community gardens. Increase the tax on concentrated animal feeding operations and “farmers” who practice monoculture.

Charge ranchers who graze their cattle on public lands the going rate, not below-market fees. Incarcerate, not celebrate, ranchers (Cliven Bundy) who refuse to pay rent on land they don’t own but profit from, even as their commodity tramples protected habitat for endangered species.

Give residents and businesses that compost food scrap a tax break. Make rain-barrel use a tax deduction.

Tax lawmakers who put special interests and profit ahead of the public good. If you’re a politician and you’re convicted of corruption, the taxman should be the first visitor you see from behind bars. 

Let’s call it the Failing the Public Tax. Send the first such bill to the incarcerated Salvatore DiMasi, the former Speaker of the Massachusetts House of Representatives who was found guilty in 2011 of using his position to secure multimillion-dollar state contracts for a software company in exchange for kickbacks.

If we can tax the lifeblood of businesses (inventory), we should be able to jack up the tax on developers who pour asphalt and concrete. Give those who tear up impervious surfaces in favor of green space a tax break.

The most basic principle in economics, Stiglitz says, is that companies should pay the costs that are incurred in their production processes. This, he says, is what enables the price system to guide the economy toward efficiency.

Our current tax system is only efficient in its ability to scar the environment and marginalize the less fortunate.