(The Economic Policy Institute has developed a FIVE POINT working people’s agenda to (1) provide a planning guideline for the new Trump administration to put Americans back to work and (2) provide a benchmark to judge whether or not President Trump is really the workingman’s president he pledged to be in his campaign. This is Point 5, the last in the series.)
Part 5: Raise top tax rates to invest in America and restore power to the bottom 90 percent
The top 1% do not need tax cuts that increase their incentive to further rig the economy’s rules
Collectively the top 1% of Americans have enjoyed extraordinary income growth since 1979, doubling their share of all income. This disproportionate capture of the fruits of economic growth is due in great part to the expansion of the financial sector (and escalating pay in that sector) and the monstrous growth of executive pay.
Crucially, there is little to no evidence that escalating incomes at the top were driven by the soaring productivity of finance and corporate managers. Instead, gains at the top were essentially zero-sum transfers from the bottom 90 percent that did not generate any economy-wide benefit.
TRUMP APPOINTEES: MORE OF THE SAME
This means that measures that give the bottom 90 percent some leverage to secure a more proportionate share of income growth will not harm overall economic growth. Rather, providing this countervailing power is critical to increasing wages and incomes for the vast majority.
President Trump’s appointments of corporate and financial titans to top spots in his administration do not suggest that he will soon be dismantling the policies that direct new wealth and income to the very top.
PROGRESS TAX SYSTEM NEEDED
Progressive taxes take a larger share of income from high-income earners than from low-income earners. A range of progressive tax increases would provide needed financing for social insurance and safety net programs as well as public investments.
They would also help ordinary workers and their families claim a fairer share of the economic pie.
- Eliminate tax preferences for executive pay or make deductions for executive pay contingent on granting rank-and-file wage increases equal to productivity growth.
Effective rules to make executive pay levels transparent—revealing what executives make relative to worker pay—can help limit the explosive growth in executive pay. But a more powerful fix requires legislation.
Such legislation would eliminate corporate tax deductions for excessive executive pay and create tax incentives for firms that provide wage increases for workers that equal increases in productivity.
Higher marginal income tax rates on top earners are also essential.
- Implement a financial transactions tax (FTT).
A well-designed FTT — a small levy placed on the sale of stocks, bonds, derivatives, and other investments — would generate tax revenue progressively and efficiently. Gross revenues from the tax would likely range from $110 billion to $403 billion.
As the U.S. economy continues to recover from the 2008 financial crisis and the Great Recession, an FTT would help ensure that the financial sector compensates other sectors of the economy, particularly U.S. families, for the damage inflicted by its abuses.
Through generating tax revenues, decreasing the fees Americans pay on their investments, and shrinking unproductive parts of the financial sector, an FTT would help Wall Street work for Main Street.
- Raise top marginal income tax rates.
Higher marginal income tax rates would reduce the economic payoff of the zero-sum transfers of income to the top 1% — transfers that have driven much of the increases in executive and financial sector pay in recent decades.
The revenue derived by higher tax rates would provide needed financing for the public investments, social insurance, and social supports America’s families need.
(EPI is an independent, nonprofit think tank that researches the impact of economic trends and policies on working people in the United States. EPI’s research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans.)