Forum Post: A Proposal for a Concrete Demand: Eliminate Tax Expenditures and Replace with a 0% Marginal Rate on the First $20,000 of income

As everyone knows, there's been some criticism of the lack of concrete demands so far. I have a fairly simple proposal that would address what I see as some of the primary concerns of the movement, as well as of its critics. That is to advocate for the elimination of tax expenditures, which overwhelmingly go to the very wealthiest and which do great damage to our economy, and replace it with a 0% marginal rate on the first $20,000 of income for both income and payroll taxes (this number is essentially arbitrary and would need to be adjusted pending more precise analysis than I've done).

This addresses a few problems. First of all, tax expenditures are a primary reason why many in the top 1% are able to pay so little in taxes. Eliminating individual income tax deductions would go a long way to making sure everyone pays their fair share of taxes. Check out Tax Policy Center numbers to see what I mean: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3170&topic2ID=60&topic3ID=95&DocTypeID=2

Second, there is a legitimate criticism that some people in the top 1% are paying their fair share. There are some people who are being taxed at very high rates and certainly are making a contribution. The problem is these people are a minority in the top 1%. Tables previously posted by the Tax Policy Center (currently being recalculated due to an error, shouldn't impact the general point however) showed that the top 1% pay widely varying shares of their income as taxes, why should some individuals in the top 1% pay something close to the marginal rate while others pay a lower effective rate than someone making $50,000 a year? Addressing tax expenditures will impact those in the 1% who are not pulling their weight and are taking advantage of the system while having less impact on those that are doing everything right (especially if overall rates are adjusted, a complexity beyond this post).

Aside from that, reducing the distortions due to tax expenditures will increase efficiency and thus economic growth, benefiting the 1% and 99% alike.

Of course, a small handful of tax expenditures that go primarily to the middle and lower class may need to be maintained, such as the EITC and child tax credit. The same elimination of credits/deductions should be done for corporate incomes, but will be more complicated due to increased need to take into account issues such as depreciation (though this is also necessary for individual income tax returns that have corporate income reported here). Other reforms, particularly an increase to the capital gains rate to make it closer to top marginal income rates (though it should be somewhat less to account for inflation risk) can and should be tacked onto this proposal.

These are details, however. Eliminating deductions and simplifying rates will go a long way to addressing increasing inequality (tables from the Tax Policy Center also indicate the share of income going to the top 1% has increased far more rapidly than their share of total taxes, more than 100% increase for income compared to only about 80% for tax share). While not as sexy as some other demands, eliminating tax expenditures is a policy that would do far more to restore equality of opportunity to all Americans and eliminate the possibilities for the wealthy few to manipulate the system than just about any reform.