opinion
“There's been class warfare going on for the last 20 years, and my class has won. We’re the ones that have gotten our tax rates reduced dramatically.”—Billionaire Warren Buffett, CNN, Sept. 30, 2011.
Presidential candidate Mike Bloomberg’s proposals for increasing tax revenues — by getting the rich to pay more — are admirably straightforward, clear and practical. However the former New York mayor does on Super Tuesday and beyond, Democrats should pay attention.
►Bloomberg wants more resources for the IRS, so the government can collect the money it’s owed. The IRS is currently operating with outdated computer systems from the 1960s, and the IRS literally lacks the resources to audit the complex returns of the rich. The IRS budget declined in real terms over the past several years, and it needs a big infusion of money. As just one example, the percentage of tax returns audited dropped from almost 1% in 2010 to 0.5% in 2017. Independent academics have estimated the IRS (without any changes to the tax laws) could raise an extra $100 billion per year with increased enforcement, while at the same time making the system more progressive (most of the extra money collected would come from the affluent).
Besides the increased revenue, this is a fairness issue. People (and corporations), no matter how wealthy and powerful, should pay what they owe.
Bloomberg would substantially increase the IRS budget. This proposal is really key — and should be included, regardless of how Democrats decide to proceed on taxes (with a wealth tax or whatever). In fact, this is Bloomberg's most important point. If you want to collect taxes, invest in the collection agency!
►Bloomberg would close several tax loopholes that mainly benefit the rich. For example, eliminating the carried interest provision mainly benefits private equity tycoons. If you’re a partner at a private equity firm, you earn an incentive fee (called the "carried interest"). Instead of treating that as ordinary earned income for the private equity partners (with a maximum tax rate of 37%), our current system treats it as capital gains (with a maximum tax rate of nearly 24%). A nice deal if you can get it! Bloomberg wants that carried interest taxed as regular income.
►Those who benefit most from our society should pay more. Bloomberg has several proposals aimed directly at this issue. He’s calling for a 5% income surtax on super-rich households (with incomes over $5 million, from whatever source), taxing capital gains incomes of over $1 million at regular income tax rates, and getting more tax revenues from the estates of the ultra-wealthy. In line with this general theme, Bloomberg wants to increase the corporate tax rate from 21% to 28%. Combined with strong enforcement and closing some corporate tax loopholes, this would ensure corporations pay their fair share.
Under-funding IRS and constitutional challenge aren't the problems
Rather than these straightforward approaches to raising taxes, several other campaigns (notably those of Sens. Elizabeth Warren and Bernie Sanders) want to create a new direct tax on wealth. While I agree with all of them and former Vice President Joe Biden that the rich should pay more taxes, a direct tax on wealth (5% of one’s net worth over $50 million, or however it’s designed) presents at least two problems: operational and constitutional.
Operationally, the IRS is over-stretched and under-budgeted. Hopefully, a new Democratic administration will address this issue — but hiring and training new staff, and building new computer systems, takes time.And we've never had a wealth tax before. Asking the IRS to develop an entirely new tax regime from scratch would be a risky stretch, and likely wouldn't get done quickly — particularly since the IRS would be recovering from years of under-funding.
Judge Judy: Mike Bloomberg can restore peace to a divided nation
The other potential problem with the wealth tax, since it’s unprecedented, is its constitutionality. Bloomberg's proposals are clearly constitutional. A wealth tax, however, is an open invitation to constitutional challenges, particularly given the conservative slant of the Supreme Court. Remember, Republicans are still litigating the constitutionality of the Affordable Care Act.
Even if the wealth tax is found to be constitutional, it’s easy to imagine delays and confusion in implementation. And if the wealth tax is found to be unconstitutional, it will mean time and revenue lost "going back to the drawing board" — when our government desperately needs to raise more money from the richest Americans.
Go with your gut: Democrats are overthinking the 2020 nomination race. Time to let passions rule.
All of Bloomberg’s proposals are highly workable, won’t face any constitutional challenge, and will make American society more equitable. They may not be perfect and perhaps the proposed new tax rates for the rich should be higher, but they provide a good framework for thinking about how to increase tax revenues from those who have benefited most from our economic and political system.
Remember the saying that only the arch anti-Communist Richard Nixon could have gone to China? In this case, it has taken a self-made entrepreneurial billionaire to come up with the most effective plan to raise taxes on the rich.
Steven Strauss is a lecturer and visiting professor at Princeton University's Woodrow Wilson School of Public and International Affairs, an economic development specialist and a member of USA TODAY’s Board of Contributors. From 2008 to 2012, he was a member of the Bloomberg administration in New York City. Follow him Twitter: @Steven_Strauss
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March 03, 2020 at 05:03PM
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However Bloomberg fares on Super Tuesday, Democrats should adopt his plan to tax the rich - USA TODAY
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