A More Progressive Tax System
Table of Contents
An Income Tax System with a Reverse Income Tax for Taxpayers with Less Than $50,000 Income
In The New Enlightenment (pages 88-103), I detail and justify much more progressive income tax system with a 55% maximum rate on income above $410,000 and a reverse income tax for incomes below $50,000, as detailed in this table:
|Income||Marginal tax rate|
|$260,000 – $410,000||50%|
|$160,000 – $260,000||40%|
|$90,000 – $160,000||20%|
|$50,000 – $90,000||10%|
|$40,000 – $50,000||0% Tax 0-$5,000 Income supplement|
|$30,000 – $40,000||0% Tax $5-$10,000 Income supplement|
|$20,000 – $30,000||0% Tax $10-$15,000 Income supplement|
|$10,000 – $20,000||0% Tax $15,000 Income supplement|
For incomes below $10,000 per year the current EITC would remain in effect. The tax eliminates the special treatment of capital gains and “carried interest.” The resulting increase in government revenues will enable public policies that will end unemployment (or reduce it to historic lows) through an expanded earned income tax credit system that reduces full-time workhours 10% for workers with income less than 100,000 per year—less work time per worker requires more workers. The system will create a minimum tax free annual income of $34,980 for full-time work. The economic stimulus effect of the system will increase demand for workers, further reducing unemployment. Despite 10% fewer work hours, and consequently as much as 10% lower compensation from the workplace, people’s take-home income whose income now is under $160,000 will rise, and rise proportionally more the lower the income due to lower taxes, the EITC and a higher minimum wage.
We are past due for a full time workhour reduction. In 1850, the average number of weekly workhours of an industrial worker was roughly 66 hours or 11 hours per day, six days per week. Productivity advancements allowed popular movements to be successful in establishing a 40 hour a week national standard about 75 years ago when productivity was about one-fifth what it is today. A reduction to 36 hours per week is a conservative first step toward more substantial reductions.
“A Wealth Tax—Just and Necessary” and the following section titled “An Additional Tax on a Unique Kind of Wealth: Land” is a 2,578-word excerpt from Amazon as Metaphor’s manuscript.
A Wealth Tax—Just and Necessary
As we have seen, dysfunctional economic and political systems and the super-wealthy’s extraordinary ability to abuse them to extract value from social resources and collective action are responsible for their extreme wealth. Very serious, even desperate social needs are not met because a small elite has captured the resources needed to meet them. Instead of serving public needs, our elite’s extreme wealth is translating into extreme political power, power to stifle competition, and power to shape ideology to gain more power.
And their extreme wealth keeps generating more. Based on wealth data from 1987 through 2013, wealth holders with over a billion dollars had returns on their investments averaging between 6% and 6.8%, varying with the size of their wealth. Over this period, the average wealth per adult rose at a 2.1% annual rate.
Each year, with no work, a person with $1 billion gains, on average, $60 million (6%), and a person with $5 billion gains, on average, $340 million (6.8%). If they keep these gains invested, they pay no tax. We must reduce these gains and the power to have them because both are unjustly enabled at the expense of everyone else.
From 1989 to 2019, the top 1% had a $21 trillion increase in its wealth, while the least wealthy half of American households lost $900 billion. And the massive wealth transfer from those who have too little to those who have too much is ongoing. From the start of the pandemic to August 2021, U.S. billionaire wealth increased 61% to $1.8 trillion. A wealth tax is an essential component of the agenda I propose to stop and reverse this trend. A highly progressive wealth tax is a just and necessary way to raise several hundred billion dollars per year for public services and infrastructure, and to reduce inequality.
In my 2017 released book, The New Enlightenment, I detailed a wealth tax. No U.S. policymaker I am aware of proposed a wealth tax at that time. But since then, Senators Bernie Sanders and Elizabeth Warren proposed wealth taxes in their presidential campaign platforms. Senator Sanders’s proposal was the most progressive and beneficial of the three. Below I offer an improved version of Senator Sanders’ proposal. The table shows my proposed wealth tax rates for all types of wealth. Households with wealth less than or equal to $5 million or 97.3% of households will pay $0.00 in wealth tax. Despite this, the tax will result in $824 billion in public funds per year, based on the Federal Reserve’s 2019 Survey of Consumer Finances data. In the next section, I justify and propose an additional progressive tax on land value.
 Capital in the 21st Century, pg. 435, Table 12.1, Thomas Piketty, Growth rate of top global wealth holders
|Wealth ($)||Tax Rate||Percent of Households above low $ end||Number of Households above low $ end|
|5 million-30 million||1.00%||2.79%||3,592,454|
|30 million-50 million||1.50%||0.22%||279,340|
|50 million-250 million||2.50%||0.08%||97,687|
|250 million-500 million||3.50%||0.01%||6,819|
|500 million-1 billion||4.50%||0.003%||3,883|
|$1 billion-$5 billion||6.50%||0.0005%||634|
Based on wealth data from 1987 through 2013, wealth holders with over a billion dollars had returns on their investments averaging between 6% and 6.8%, varying with the size of their wealth. The average wealth per adult over this period rose at a 2.1% annual rate.
My proposed tax rate on wealth between $1 billion and $5 billion is slightly over their average rate of return, and for wealth larger than $5 billion, more significantly so. The tax rate is sufficiently large to gradually reduce the number in the billionaire class to the great benefit of society and everyone in it, including the ex-billionaires if you don’t measure well-being in dollars exclusively. No one deserves close to 10,300 times the median American’s wealth, which is what a person with “only” one billion dollars owns. There are over 600 households that have more in the US; Bezos has two orders of magnitude more. Inequalities this extreme are unjust and socially harmful. Our choice is to have decency or to have billionaires.
As the number of billionaires declines, to maintain constant revenues, we will raise the rates on wealth holders with hundreds of millions in wealth. Also, if we need to maintain the same amount of funds for public purposes, no good reason exists to limit the tax to the top 2.7% of wealth holders. For example, requiring households with more wealth than 95% of the population to return 1% per year of their wealth above that qualifying them to be in the top 95% would be reasonable and just.
The Revenue Act of 1913 established an income tax. Like the wealth tax I propose, only an economic elite, approximately three percent of the population, was subject to the tax. We have more compelling reasons to target taxes on our elite, now with historic levels of wealth.
The $824 billion estimate is based on the assumption that the wealth hidden in tax havens is not revealed. The percent of global wealth in tax havens is between 10% and 30%. Since the injustice of and dysfunctions resulting from the wealthy’s shirking of tax responsibility about 99% of the world’s population would like to see end, it should and can end. With improved international asset reporting agreements, the tax could raise over $100 billion more per year.
 Capital in the 21st Century, pg. 435, Table 12.1, Thomas Piketty, Growth rate of top global wealth holders
 Capital in The Twenty First Century, 2014, Thomas Piketty, pg. 466
The U.S. Should Lead the World in Establishing a Global Wealth Tax
A global standard wealth tax, in conjunction with international asset reporting agreements, will minimize tax avoidance problems. The U.S. should lead the world in establishing an international wealth tax. Solving the most important problems worldwide requires money which is abundant, so we must appropriately tax the people with a vastly disproportionate share.
In 2021, known global wealth totaled $431 trillion. Assuming a low-end estimate on the percentage hidden, 10%, total wealth was actually $474 trillion. If the tax I propose were instituted worldwide, it would raise over $4.06 trillion per year. (This estimate is based on US wealth distribution, but a larger proportion of wealth is in the top percentiles globally. For example, the top 1% globally has 43% of global wealth. As I noted earlier, the top 1% in the US has 40% of U.S. wealth. )
The U.N. estimates it would cost $116 billion per year to bring everyone up to the World Bank’s poverty line of $1.25 per day and end world hunger. It estimates that a sustainable drop in hunger requires “pro-poor” investments of an additional $151 billion per year for irrigation, infrastructure, and credit facilities on top of cash transfers. The $267 billion total is 6.6% of the revenues that would be generated worldwide by my proposed tax.
Among the immense benefits the remaining $3.8 trillion per year would enable is the ending of the climate change crisis. The UN’s Intergovernmental Panel on Climate Change (IPCC) says that an annual investment of $2.4 trillion is needed in the energy system until 2035 to limit temperature rise to below 1.5 °C from pre-industrial levels. And the effort to tackle climate change must also include spending on reforestation, coastal defense systems, and efforts to adapt to rising temperatures.
Without a global wealth tax, to ensure an insignificant expatriation problem results from my tax applied domestically, we would bar entry into the country to anyone with over $5 million in wealth who gives up U.S. citizenship to avoid tax responsibilities. Only if the person could prove he did not expatriate to avoid tax responsibilities would he be allowed 30 days per year in the U.S.
An Additional Tax on a Unique Kind of Wealth: Land
The value of land is the direct and indirect result of public investments, so the public should receive compensation for its role in creating land’s value. Without investments in the infrastructure of roads, schools, etc; and public services such as mass transit, law enforcement, and fire protection; and the privately provided amenities these public investments attract, a parcel of land would have little value. Also making land unique is it is a limited resource necessary for all economic activity, and owners of valuable locations take and exclude others from these locations and their local public goods, even if they choose not to use them.
Land speculators buy land near existing infrastructure, thereby inflating the prices of land of high potential usefulness while not using it and pushing development to cheaper, more remote sites. This destroys farmland, raises the cost of the farmland remaining, and requires wasteful duplication of expensive infrastructure, which creates environmental harm and increases tax burdens. Successful land speculators unjustly profit off the work of others in developing the infrastructure and other amenities in their land’s vicinity.
If land value were taxed or more heavily taxed, it would discourage land speculation and incentivize owners to productively use their land to generate income to pay the tax or to sell it to an owner that would. When the cost to maintain land rises and more land is on the market, prices will fall, which will benefit low income and wealth households seeking land for a residence or small business. However, the resulting public funds and private incentives from a land value tax may be sufficiently economically beneficial that land prices sometimes will rise rather than fall.
Land: The Primary Driver Of Our Growing Inequality
The skyrocketing value of land is the primary driver of our growing inequality. That the long-term trend of the return to capital is larger than the growth rate of the economy, recent research has shown mostly results from gains in real estate. In the extreme example of the New York metropolitan area, the average price per square foot of land rose to $366 in 2006, from $47 in 1999, a 679% increase. Over that same period, the S & P 500 declined by 19.5%. From 1970 to 2010, U.S. housing capital as a share of the economy rose by over 40 percentage points, much more than in other advanced economies. Rich people tend to own a lot of land, poor people very little or none, so a land value tax is necessarily progressive, and we can make it more so by exempting some residential parcel value from the tax.
The largest landholders in the U.S. own a significant portion of the country. John Malone owns the most, 2,200,000 acres, 3.3 times the land area of Rhode Island. He made his fortune in the media as the CEO and owner of Tele-Communications, Inc before selling it to AT&T for $50 billion in 1999. CNN founder Ted Turner owns 2,000,000 acres, three times the land area of Rhode Island. Stan Kroenke, founder of a real estate development firm and who married Ann Walton, a Walmart heiress, owns 1,400,000 acres, 2.1 times Rhode Island’s land area. Jeff Bezos owns 420,000 acres, 63% of Rhode Island’s area. Bill Gates acquired more than 269,000 acres of farmland in the United States in the past ten years, making him the largest farmland owner in the U.S. Just the top 10 private landholders in the U.S. own 810,720 acres, more than the combined land area of Rhode Island, Delaware, Connecticut, Hawaii, and New Jersey. Large land tract breakups will make much more land available for small landholders for farming and homes.
In 2017, the U.S. Department of Agriculture estimated that 352 million acres of farmland was rented. (A growing share of this land is owned by foreign investors.) Farmers paying rent for the land they make their living and reside on is significantly similar to the arrangement between feudalism’s lords and serfs. My proposed land tax will lead to some of these farmers buying the land they work from landlords motivated to sell it by its increased taxes. The tax will be lower for the farmer because it has a $500,000 exemption for land on which an owner’s residence is situated.
Land value taxation is superior to the typical real estate taxation levied by local governments because creating and improving structures creates jobs and improves communities, so taxing buildings and improvements disincentivizes what we want to incentivize. Raising land taxes can allow the reduction of taxes on buildings. And since it will motivate large landholders to sell land, it will reduce prices for people who can use some for their residence or business. In post-industrial cities where much land is vacant, the incentive to use it or sell it to owners that will use it productively to generate income will be especially beneficial.
Land value taxation has beneficial economic effects and less adverse economic effects than taxing income and other kinds of wealth. The tax is also advantageous because it is impossible to evade; you can’t hide the asset in a foreign tax haven. For the above reasons, we should tax land value at a higher rate than wealth in general.
Land with a building sold as a unit complicates valuing the land. But accessors can estimate the building and its parcel’s value separately. Several methods can be used:
A parcel’s value can be based on its sale price before constructing the building. If this sale price is too old, comparable parcel sale prices can be used. If there is an insufficient number of comparable parcel sales, the parcel’s value can be estimated by subtracting an estimate of the building’s value from the total value of the real estate based on its sale price or comparable sale prices. The building’s value can be estimated using standard per square foot values for the building’s type and age. The accessor can modify this value based on specific characteristics of the building. Despite these complications, the combined administrative, compliance and evasion costs of most other taxes are higher.
Regarding land value taxation, Adam Smith said, “nothing could be more reasonable”; Milton Friedman termed it “the least bad tax.” The Organization for Economic Cooperation and Development supports the idea. So too did a recent working paper by the International Monetary Fund and the Mirrlees Review of British taxation by the Institute of Fiscal Studies. Nobel laureates in economics Joseph Stiglitz and William Vickrey have expressed support for a land value tax. Albert Einstein said of the most prominent supporter of a land value tax in history, the 19th-century political economist Henry George, “One cannot imagine a more beautiful combination of intellectual keenness, artistic form and fervent love of justice.”
 Pg. 157 https://www.finance.senate.gov/imo/media/doc/Comprehensive%20Tax%20Reform%20for%202015%20and%20Beyond%20(C).pdf
My Land Tax Proposal
I propose a 1% tax on all land value except for land on which a primary residence is situated, for which I propose a $500,000 exemption. (Although $500,000 is a very high residential parcel value in most of the country, in some cities it is below average.) The exclusion is to make the tax more progressive and to not increase the burden attached to residences. I recommend we use some of the revenues generated to decrease this burden by subsidizing localities to decrease their taxes applied to building values.
For households with a primary residence whose land value is above $500,000 that cannot afford the tax, it will be deferred until the house is sold. The land value tax would be in addition to any tax paid by households with over $5 million in total, including land, wealth.
Based on the best estimates using the available data, my proposed tax on land will raise about $339 billion in public funds per year. Details on this estimate are in Appendix B (of Amazon as Metaphor).
With most of the $339 billion, we can eliminate income tax for all households in the bottom 80% or with less than about $100,000 in adjusted gross income. The total income tax revenues received by the federal government in 2017 (most recent available) from taxpayers in the bottom 80% was $286 billion. If $339 billion of land tax revenues replaced these revenues, $53 billion of surplus funds would remain for lowering building value taxes. The resulting stimulus to our economy from these policies will be substantial.
 In 2017, the last year for which the the IRS website had this data at the time of writing, the top 20% cutoff was $97,870. IRS “Table 1. All Individual Returns Excluding Dependents: Number of Returns, Shares of Adjusted Gross Income (AGI) and Total Income Tax, AGI Floor on Percentiles in Current and Constant Dollars, and Average Tax Rates, by Selected Expanded Descending Cumulative Percentiles of Returns Based on Income Size Using the Definition of AGI for Each Year, Tax Years 2001-2017”
Excerpted from The New Enlightenment, Pages 210-218
Replace Estate Tax with a Progressive Inheritance Tax
Large amounts of inherited wealth, and gross concentrations of wealth, inherited or not, characterize aristocratic, not free and democratic societies. We can and should use the tax system to support broad-based economic and political opportunity and substantially reduce dynastic wealth.
Inheritance is an important driver of the huge and growing wealth disparities. Gratuitous gifts and bequests represent between 35% and 45% of household net worth.[i] This estimate is based on surveys where respondents are asked whether they have received any inheritances, gifts, or other types of wealth transfers, such as trust funds, in the past, and the value of the transfer. This method is likely to result in substantial under-reporting. Inheritances as a fraction of total wealth, especially of the largest fortunes, are likely to be much more than we know.
We tax these wealth transfers through our estate tax, raising less than $12 billion, or just 1% of the $1.2 trillion transferred annually.[ii] Many people inherit wealth so vast they never need to work or do anything of value to society. They can live off the investment proceeds of their inherited wealth at an income far greater than the majority of the full-time working population, Sometimes their inherited assets value increases more than their income.
Six of the ten wealthiest Americans are heirs to major fortunes. As I noted previously, the six Walmart heirs have $145 billion, more wealth than the bottom 42% or 132 million Americans combined. We are at the beginning of the largest intergenerational transfer of wealth in history. A Boston College Center on Wealth and Philanthropy study projects that $36 trillion will be passed down to heirs from 2011 to 2061. This will create a new aristocracy with unprecedented wealth, and therefore power.
For economic inequalities to be tolerable, they need to be, to the degree practical, associated with merit, or contributions to society, and be within reasonable bounds. Inequalities must be useful to all, and only then can they be justified. (An important Enlightenment ideal: “Social distinctions can be based only on common utility,” according to Article 1 of the 1789 Declaration of the Rights of Man and the Citizen.)
In old Europe, a relatively small group of wealthy families lived lavishly on the fruits of inherited wealth, and the rest struggled to survive. It would be a cruel and ironic fate if the United States, once known in old Europe and throughout the world to be the land of opportunity and egalitarianism, reversed roles with old Europe. Without vigorous policy solutions to change direction, this is our destination.
The advantages that vast intergenerational wealth transfers provide are based not on merit, but on luck. Clearly, public funds are needed, and should be raised by taxing inherited income, especially large amounts, at a higher rate than earned income. Also, taxing bequests and gifts more heavily than other income will limit or reduce dynastic wealth, a purpose of value in itself, in addition to the value created by a large increase in public resources. Society can direct these resources to purposes that will maximize benefit to all. Also, this tax can be paid by people more easily able to bear the burdens of government finance. It will provide funds sufficient to support free college education, and substantially increase the funding of relatively low funded K-12 schools.
[i] Estate Tax Reform: Issues and Options, Lily L. Batchelder, New York University School of Law, 2/27/09
[ii] “How to target untaxed wealth” December 17, 2012, By Lawrence Summers, Economist, President Emeritus and Professor of Harvard University, Secretary of the Treasury, Clinton administration, Director of the National Economic Council for President Obama, 1/09- 11/10
A Just Man Will Rejoice” in Excessive Wealth Being Returned to Society upon His Death
In Agrarian Justice, Thomas Paine offered an estate tax proposal as a remedy to economic injustice in the old Europe of his day. He justified it by pointing out that as hunter-gatherers, or for the vast majority of human existence, we all were equal inheritors of the Earth. “It is a position not to be controverted that the earth, in its natural uncultivated state was, and ever would have continued to be, the common property of the human race. In that state every man would have been born to property. He would have been a joint life proprietor with the rest in the property of the soil, and in all its natural productions, vegetable and animal,”[i] he wrote.
Paine believed that civilization should provide advantages to everyone and that a person in poverty or with no wealth is in a worse state “than he would have been had he been born in a state of nature, and that civilization ought to have made, and ought still to make, provision for that purpose [of providing everyone the value of their lost natural inheritance], it can only be done by subtracting from property a portion equal in value to the natural inheritance it has absorbed” from other people, to be provided in compensation to them.[ii]
He proposed an estate tax to accomplish this, using the funds generated to provide everyone at age 21 sufficient wealth to start a farm to earn a livelihood, and a pension sufficient for a decent livelihood starting from age 50, and to support the disabled. He chose to tax wealth upon death for these purposes “because it will be the least troublesome and the most effectual, and also because the subtraction will be made at a time that best admits it [since it] is at the moment that property is passing by the death of one person to the possession of another. In this case, the bequeather gives nothing: the receiver pays nothing. The only matter to him is, that the monopoly of natural inheritance, to which there never was a right, begins to cease in his person. A generous man would not wish it to continue, and a just man will rejoice to see it abolished.”[iii]
[i] Common sense, Thomas Paine, 2005 Penguin edition, first published 1776, pg. 85
[ii] Ibid, pg. 89
[iii] Ibid, pg. 89,90
A Tax to Enhance the Productive Capacity of the Following Generation
Rather than acting on Paine’s vision of everyone starting adulthood with wealth sufficient to begin a productive life, today we force many young people to start adulthood with mountains of student loan debt, from under which many will never dig out. In The New Enlightenment, we will act on Paine’s vision for young adults in a way appropriate for our times. In Paine’s time, acquiring what was necessary to farm was the main way to earn a living. Today knowledge acquisition is most important, so society should offer resources for this purpose, and provide it, as Paine likely would, using a tax on wealth transfers at death.
The major contribution that knowledge makes to wealth creation today, unlike in Paine’s time (although it was important then also), is discussed further in Part 4, Note 1. To use much of modern society’s large accumulation of inherited knowledge and advance it to further improve our capacity to create wealth requires widespread knowledge acquisition. Society should now facilitate this with free access to post-secondary education and more federal support for an improved and more equitable K-12 system. In The New Enlightenment, we also provide funds for business (not necessarily farm) acquisition, with public funds sourced elsewhere—a policy that Paine’s writings indicate he would also likely approve (Policy 3).
Taxing Inheritance As Income
Our large and growing income disparities are to an important degree created by our huge and growing inherited wealth disparities. Since 2009, corporate profits, dividend payouts, and the stock market have all risen sharply, but for most people wages have stagnated or declined. As previously noted, the proportion of income from capital for the top 0.1% increased from 64% to 70% from 1996 to 2006.
In the United States in 2013, the richest 10% of households owned 75% of all the country’s wealth and the top 1% of households owned 40% of the wealth. The bottom half of households owned just 1.1% of the country’s wealth. But, as I noted previously, large amounts of some of the wealthy’s wealth are hidden in tax shelters, and even when not in tax shelters self-reporting likely results in these statistics under-representing our huge wealth disparities. The largest fortunes are almost certainly higher than we know.
As an important way to reduce the growing economic divide and increase opportunity for all, we will replace the estate tax with an inheritance tax, using the progressive income tax rates defined earlier plus 5%, with an exemption. An estate tax taxes the donor, which is inappropriate, and taxing the donor has allowed this tax to be denigrated with the term “death tax,” even though it is essentially a tax on the living heirs. The “death tax” label also implies that everyone who dies has to pay the tax, but under current law, only 0.14% of estates owed the tax in 2013.[i] We should tax inherited wealth more appropriately, based on each heir’s ability to pay, using a progressive inheritance tax on the heirs.
The unjust and irrational exclusion of capital gains for taxation at death under the estate tax will be virtually eliminated by replacing the estate tax with The New Enlightenment’s inheritance tax; the heir will pay the tax on the full asset’s value on transfer, including any gains, above a $300,000 inheritance. For example: Now over half the value of assets transferred by estates worth over $100 million is comprised of capital gains.[ii] An insignificant fraction of their capital gains will escape taxation using the New Enlightenment system.
Under The New Enlightenment income tax system, federal income tax revenue will be about 18% of national income. The New Enlightenment inheritance tax is designed to yield about 21% of inherited income. Since the distribution of inherited income is skewed toward much higher incomes than other income, taxing inheritances without an exemption will yield over 21% because the highest tax rate of 60% (55% income tax plus 5%), and the tax rates of 55% (50% income tax plus 5%) and 45% (40% income tax plus 5%), will be applied to a much larger fraction of inheritance tax payers than income tax payers. However, an exemption will be used below which inheritances will not be taxed.
The value of this exemption that will yield a 21% average tax is $300,000. This estimate is based on bequeathed wealth being of the same distribution as the 2010 Federal Reserve Survey of Consumer Finances wealth distribution and the assumption that on average five heirs will receive equal inheritances or portions of this bequeathed wealth. If the average number of heirs after the New Enlightenment inheritance tax is instituted is fewer than five, fewer than five exemptions would be applied, so over 21% of bequeathed wealth would be collected. If there are over five heirs less than 21% would be collected. However, if the average is over five heirs, an important purpose of the tax will still be served by distributing dynastic wealth to larger numbers of people in smaller portions. This inheritance tax will be a motive to do so to minimize the total tax paid that does not exist under the estate tax. For example:
For someone who bequeaths $30 million to one person, that person would pay the tax based on his income on $29,700,000, almost all of which would be at the 60% rate or about $17.8 million in taxes. If he bequeathed this amount to 100 people equally, no tax would be paid because each person would get $300,000 which is exempted. One hundred people receiving $300,000 would reduce inequality, and would generally increase consumption and associated economic activity much more than one person receiving about $12 million after tax. Assuming five heirs per estate, about 95% of the population will pay no inheritance tax.
Also, an increase in the inheritance tax will induce some of the wealthy to consume more, since less benefit to heirs will occur from money they do not spend, and this will stimulate the economy.
To prevent the avoidance of the tax through gifts by donors throughout their lives, the total of lifetime gifts and bequests below the exemption will not be taxed, then the inheritance tax is applied on the cumulative total of all prior year gifts above the $300,000 exemption, and applied on the amount not previously taxed. For example:
If a person receives $300,000 total in gifts over five years, no tax would be paid. If a $100,000 gift is received in the sixth year, our income tax schedule shows that from zero to $50,000 is not taxed, essentially lifting the exemption to $350,000, from $50,000 to $90,000 or $40,000 would be taxed at the income tax rate of 10% plus 5% or 15%, yielding $6,000 in tax, and from $90,000 to $100,000, or $10,000, would be taxed at 20% plus 5%, or 25%, yielding $2,500 in tax, or a total of $8,500. If a $100,000 gift is received in the seventh year, the tax rate for this $100,000 would be determined starting from the prior $100,000 above the exemption as a base. So the $60,000 from $100,000 to $160,000 would be taxed at a 20% plus 5% rate yielding $15,000 and the $40,000 from $160,000 to $200,000 would be taxed at a 40% plus 5% rate, yielding $18,000, or total $33,000 in tax.
In the past, the failure of estate tax supporters to address what exceptions should be made for family farms and family owned businesses was a prime reason for the success of estate tax opponents. Most people consider that forcing the sale of a farm or business to pay the tax is unjust because sometimes it could disrupt the heirs’ lives. However, this concern is unjustified for our current estate tax. Only a handful of family farms and businesses owe any estate tax at all, and none have had to be liquidated to pay the tax.[iii]
The New Enlightenment inheritance tax policy will eliminate the possibility of forced sales of family farms and family owned businesses by allowing heirs, when necessary, to defer taxes due on the value of inherited farms and businesses, no matter how far in the future, by giving a loan on the tax amount, or any necessary portion of it, to the heir, with only interest payments required at a market rate of interest until disposition. Paying down principal will not be required until the sale of the business, or the time that cash or liquid assets are acquired sufficient to pay the remaining portion of the tax. Of course, business value will be appraised in consideration of any outstanding business loans. This will make the loan on the tax amount affordable using business income. This deferral option will be available only to the extent that the tax could not be paid with other inherited liquid assets, including excess cash in the business’s accounts and assets owned by the business that it is not using for business operations, after leaving a reasonable cushion.
Another perspective on this arrangement is: The government would immediately receive the business value of the tax amount by the heir in all cases, but when necessary would lease back the portion of the business whose value is the tax amount. The annual lease fee would be equal in value to what would be the interest and principal payment on a standard business loan on the tax amount, until the time that the loan would have been paid.
If the heir held onto a business for life and ultimately bequeathed it, the new heir will owe the remaining portion of the loan on the tax of the previous owner. The deferral with interest will again be available on the remaining value in the business in consideration of all its outstanding loans.
Frequently, heirs sell family businesses because they do not wish to continue operating them, and the evidence indicates that businesses owned or managed by heirs tend to perform relatively poorly.[iv]
Land or collectibles or other illiquid (not easily or quickly sold) assets will also be provided the deferral option with interest. However, since these assets may not be income generating, the loan will have to be supported by other income, or the asset could be sold to pay the tax.
This inheritance tax will yield $253 billion or $241 billion more per year than the estate tax it will replace (assuming an average bequest is to five heirs). Our inheritance tax satisfies the total funding requirements for free college education and the following federal education expenses. The resulting increase in federal funds will be “earmarked” or devoted exclusively for these purposes to make the benefits of this policy more obvious.
[i] Center on Budget and Policy Priorities, Myths and Realities About the Estate Tax, August 29, 2013 By Chye-Ching Huang and Nathaniel Frentz
[ii] Saving Capitalism, Robert Reich, pg.146
[iii]Impact of Estate Tax on Small Businesses and Farms Is Minimal, Center on Budget and Policy Priorities
[iv] Mckinsey Research Brief, Who Should—and Shouldn’t—Run the Family Business Dorgan, Stephen J.; Dowdy, John J.; Rippin, Thomas M. 2006
Inheritance Tax Revenues Will Be Devoted To Education
There continue to be many underperforming schools, and international comparisons indicate we need to do far more to assist schools in low-income neighborhoods, where the property taxes that are a large source of funding for schools are inadequate. In contrast to European and Asian nations, which fund schools centrally and equally, the wealthiest U.S. school districts spend nearly ten times more than the poorest, and spending ratios of three to one are common within states.[i]
Of the 1.8 million high school graduates who took the ACT test in 2013, only 26% reached the college readiness benchmarks in all basic subjects. Only 5% of Americans ages 25 to 34 whose parents didn’t finish high school has a college degree. 23% is the average of 20 rich countries in an OECD study.[ii] Both unequal access to good quality K-12 education because of the huge funding disparities and huge financial barriers to a college education are mainly responsible for this enormous and ominous international disparity.
Thirty years ago, the average gap on SAT-type tests between children of families in the richest and poorest 10% of Americans was about 90 points on an 800-point scale. In 2014, it was 125 points, one of the worst gaps in the 65 countries participating in the Program for International Student Assessment.[iii]
In addition to reversing our nation’s decline in the educational status of our citizenry and ensuring a well-educated citizenry through free college education, New Enlightenment policy is to provide substantial additional support to relatively poorly funded K-12 school districts.
We will provide an additional $90 billion to meet the goal of ensuring that every child receives an education that prepares him or her for success in college, careers, and life. We spent $621 billion in 2011–12 on public education in total at all levels of government.[iv] Considering per-student spending disparities as large as ten to one between some school districts, and the inadequacy of the $51 billion total federal spending under the No Child Left Behind Act and Elementary and Secondary Education Act in eliminating education quality disparities, $90 billion could be well used to raise the quality of education in our lower funded schools. This funding will include a requirement that all students participate in physical education and the study of nutrition. We can best address the problem of the explosion in obesity and diabetes nationwide through education of the young.
The reduction in administrative costs and the promotion of evidence-based education reforms will be a part of this reform, as in the college education reform.[v] Experimental reforms should include more individualized instruction using newly developing technological tools, and greater freedom by students to be engaged in planning their own learning experiences based on their interests and learning pace. World knowledge is now doubling about every two years, and the rate of increase is itself increasing, so the most important skills to learn in school are independent learning skills. Allowing students to pursue their own interests to a larger degree will help develop the independent learning skills needed for a lifetime of learning in many occupations, as well as for full democratic participation. It also motivates and facilitates the learning process.
The total additional expenditures budgeted for K-12 education, and the $138 billion expense for free college education, is $228 billion, which the revenue from this inheritance tax will satisfy, with $13 billion remaining for other purposes.
[i] Educational Quality And Equality, Linda Darling·Hammond, From All Things Being Equal: Instigating Opportunity in an Inequitable Time, ed. Brian D. Smedley and Alan Jenkins.
[ii] OECD, Centre for Educational Research and Innovation, Education at a Glance 2014, Table A4.2.
[iii] Saving Capitalism, Robert Reich,2015, pg. 140
[iv] U.S. Department of Education, Institute of Education Sciences, National Center for Education Statistics https://nces.ed.gov/fastfacts/display.asp?id=66
[v] The potential for massive improvements in administrative efficiency was revealed in a Dan Rather report: The Finnish government oversaw more than a million students, from primary school to university, with about 600 administrators. In comparison, Rather noted, the city of Los Angeles oversaw some 664,000 students with about 3,700 administrators.
Excerpted from The New Enlightenment, Pages 240-241
Financial Transactions Tax
We tax all products and services in the United States when they go through a public transaction, from daily necessities to luxury items, except stocks, bonds and derivatives. This inconsistency is irrational and means we’re subsidizing speculation in financial instruments. The inconsistency is also unjust because it essentially subsidizes mainly wealthy financial transaction practitioners. We are compounding this injustice by taxing any resulting gains at a much lower capital gains rate than the rate on labor income and not taxing capital gains before heirs receive assets.
A financial transactions tax will help solve important societal problems. Researchers at the Political Economy Research Institute of the University of Massachusetts, Amherst analyzed a tax of the following design, which we propose be instituted.[i] The table shows the revenue generated if trading volume fell by 50% in all financial markets as a result of the tax. The researchers believe it will fall no more than 50% relative to current levels of trading, so the revenues generated could be higher than shown in the table.
Other researchers have determined different amounts of revenue generated, some much less, but the Political Economy Research Institute’s estimate is most likely to be closest to the actual revenue generated. However, to be conservative, we will use a revenue generated amount of $300 billion in our budget analysis.
[i] Thoughts on Tax Rates and Revenue Potential for Financial Transaction Tax in U.S. Financial Markets, Robert Pollin and James Heintz, Political Economy Research Institute University of Massachusetts-Amherst
Over 30 countries, including Australia, Hong Kong, Singapore, Switzerland, and the U.K., have some form of a financial transactions tax. Of the G20 nations, 16 have a financial transactions tax, and the U.K. has a 0.5% tax. The European Union recently voted to implement a financial transactions tax in at least 11 member nations. With so many European, and several Asian, countries with the tax, there’s little chance that trading will move overseas as a result of the U.S having one. The U.K. has had a tax on stock trades for centuries, throughout periods when its volume of trading has grown robustly.
The New Enlightenment Party or Citizens Union would advocate for the United States to lead efforts for an international agreement on a uniform financial transactions tax to serve important public needs globally.
Excerpted from The New Enlightenment, Pages 218-224
Why We Must Fundamentally Reform Our Corporate Tax System and End Tax Haven Abuse
Corporate tax revenue has fallen from about 6% of gross domestic product in the 1950s to less than 2% today. This enormous decline resulted from the reduction of statutory rates, and an increase in tax loopholes, including the use of offshore tax havens. In fiscal 2011, total corporate federal taxes paid fell to lowest level since at least 1972, 12.1% of profits earned from activities within the U.S. Companies paid on average from 1987 to 2008 a 25.6% effective rate, far below the 35% top statutory corporate tax rate resulting from decades of corporate lobbying reducing it from 52% in the 1950s. Corporations have exploited loopholes in our tax system and have lobbied successfully to increase those loopholes—a lucrative activity for lobbyists and their firms, with high social costs.
As noted earlier, between 2008 and 2010, thirty large corporations spent $475 million lobbying Washington, and as a result, twenty-nine paid zero in taxes and instead received tax rebates over those three years. General Electric received $5 billion, while it had profits of $10.5 billion. The total value of the rebates received by the thirty corporations was near $11 billion. Since the combined lobbying expenses during the period were only $475 million, they received a 2,216% rate of return on their lobbying investment.
Multinational corporations complained that the higher rates of earlier decades made them “less competitive,” so we “reformed” rates down to 35%. Then they went from country to country, complaining that their tax rates made businesses “less competitive,” so these countries also “reformed” their tax rates. So now our statutory rates again are higher than rates in many other nations. This “downward spiral” has shifted tax burdens worldwide away from the wealthiest and reduced governments’ resources.
As shown on page 24’s graph, since 1950, there has been a dramatic rise in the share of federal revenue supplied by the extremely regressive payroll tax from about 10% to 40%, while there has been a dramatic fall in the share of federal revenue from corporate taxes, from about 30% to 6%. Meanwhile, corporate profits are at a 60-year high, well above where they were before the Great Recession hit.
Publicly listed corporations are hoarding a record $4.75 trillion that is not being used productively, and in the third quarter of 2012 corporate earnings were $1.75 trillion. Meanwhile, we cut government services, exploded the deficit, and left 23.2 million people unemployed. At the same time that corporations are making huge profits, workers’ wages are declining. Between 2007 and 2012, wages fell for the entire bottom 70 percent of the wage distribution, despite productivity growth of 7.7 percent.
Corporate shareholders are the beneficiaries of the reduced taxes. In 2007, the top 10% owned 81.2% of all corporate stock. The bottom 60% of us owned 2.5%. Taxes on corporations are taxes on those with the greatest ability to support the democratically determined needs of society. Taxes on corporations are also well justified because they and their major owners are benefiting the most from the vast resources of society.
U.S. companies that earn profits outside our borders pay tax on their income minus any taxes they pay to other countries. So if a company pays a tax rate of 10% in the other country, it has to pay a tax rate of only 25% here. But they need not pay any tax until they “repatriate” the money, or bring it back to the U.S. To take advantage of this loophole, companies move jobs, factories and profit centers to tax havens out of the country to keep their profits outside the U.S.
Multinational corporations are holding about $2 trillion outside of the country to “defer” their taxes. The largest U.S.-based companies expanded their untaxed offshore stockpiles by 14.4%, or $183 billion, in just one year, according to data compiled by Bloomberg. Microsoft, Apple, and Google each added to their non-U.S. holdings by over 34%. Combined, these three companies alone plan to keep $134.5 billion untaxed by our government, over double the $59.3 billion they withheld two years earlier. Apple alone has over $100 billion outside the country. Google reported $10 billion in profits in Bermuda in 2011.
The accumulation of offshore profits—totaling $1.46 trillion for the 83 companies Bloomberg examined—is increasing, because of the incentives in the U.S. tax code for booking profits offshore and leaving them there. A Government Accountability Office study reported that of the 100 of the largest publicly traded companies, 83 reported operating in tax havens, often in several simultaneously.
What makes these actions by our tech companies especially galling is that they profit greatly because of costly investments in basic research by our government, for instance, in developing the Internet, the browser, and microelectronics. They take from what our society has provided, and then diligently work to abdicate their democratically determined responsibilities for supporting our society.
Investing abroad means creating jobs abroad. With trade liberalization, the goods produced by American multinationals abroad can then be sold in the U.S. We provide multinationals with American innovations and profitable American markets. A rational and democratic government would not then allow them to not only escape paying taxes to the U.S. but also encourage them to create jobs and income abroad.
More than 70% of Fortune 500 companies use offshore tax havens to avoid paying U.S. taxes. America’s leading companies have set the example for others to follow. One scheme involves transferring intellectual property (patents, etc.) to a subsidiary registered in a tax-haven country, whose main overseas physical location is often just a mailbox. They do this to make it appear that a big part of customer costs are intellectual property license fees paid to that subsidiary, so profits can be made in a country with no tax.
Another, relatively new, and increasingly popular, scheme involves renouncing corporate citizenship entirely. The company merges with a foreign rival in a country with lower taxes and then reincorporates there while continuing its business in the United States. Many corporations have committed, and many more are considering, this unconscionable betrayal of their homeland.
Thomas Jefferson warned us, “Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gain.”
The federal government loses over $150 billion in revenues each year through tax haven abuse, and this amount is likely to increase substantially. Tax haven abusers benefit from our markets, infrastructure, educated workforce, government sponsored research and security, but then they avoid responsibility for paying for these services by using tax havens. To compensate for the loss, we have to increase revenues from other sources, cut public spending priorities, or increase the national debt. Also, multinationals’ ability to transfer profits overseas unfairly disadvantages small businesses.
Tax havens also deprive state governments of billions of dollars. In 2011, the states lost approximately $39.8 billion in tax revenues from corporations and wealthy individuals who sheltered money in foreign tax havens. Multinational corporations account for over $26 billion of the lost tax revenue, and wealthy individuals account for the rest.
Corporate tax haven abusers in the past have influenced government officials to give them a very low tax rate or a “repatriation tax holiday” to bring their huge accumulation of profits back to the U.S. and use it to “create jobs.” The companies brought the money back, and not only didn’t “create jobs,” they moved even more jobs, factories, and profit centers out of the country, assuming they will eventually get another “repatriation tax holiday.” The multinational corporations holding $2 trillion in subsidiaries outside the country, untaxed, have said that they will not bring the money back without another “tax holiday.”
This untaxed $2 trillion represents about $700 billion in government revenue we could use to put people to work repairing our roads, bridges (24% of America’s bridges are structurally deficient or functionally obsolete), and schools, and for our other policy proposals that require funding that will improve all of our lives.
 Tax Policy Center Statistics, Source of Revenue as Share of GDP, 1934 to 2020
 U.S. Corporate Tax Rate Plunges To 40 Year Low Of 12.1 Percent, Pat Garofalo, 2/3/12 https://thinkprogress.org/u-s-corporate-tax-rate-plunges-to-40-year-low-of-12-1-percent-283868e14367#.8edywltk4 and CBO, The Budget and Economic Outlook: 2014 to 2024, pg. 86
 NY Times editorial, Putting Corporate Cash to Work, March 9, 2013
 Senate September 2012 Unemployment Report
 A Decade of Flat Wages, The Key Barrier to Shared Prosperity and a Rising Middle Class, Heidi Shierholz, Lawrence Mishel, 8/21/13, Economic Policy Institute
 Offshore Cash Hoard Expands by $183 Billion at Companies, Richard Rubin, 3/8/13, http://www.bloomberg.com/news/articles/2013-03-08/offshore-cash-hoard-expands-by-183-billion-at-companies
 U.S. Government Accountability Office “International Taxation: Large US Corporations and Federal Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or Financial Privacy Jurisdictions” GAO-09-157, 12/08
 Thomas Jefferson to Horatio G. Spafford, 17 March 1814
 USPIRG The Hidden Cost of Offshore Tax Havens State Budgets Under Pressure from Tax Loophole Abuse January 2013
 US PIRG The Hidden Cost of Offshore Tax Havens, 2/5/13
Taking production or corporate headquarters location out of consideration in determining corporate tax would end the harmful practices of locating factories, dummy subsidiaries and corporate headquarters in low or no tax countries. This New Enlightenment policy does this by taxing corporations on the same percentage of their total profits as their percentage of revenue from sales in the U.S., initially at a flat tax rate of 35%. For example:
- Exavoid Corporation has $100 million of sales worldwide in 2012.
- $15 million of those sales (15% of total sales) are made in the U.S.
- Exavoid Corporation’s total worldwide profits are $10 million.
- 15% of Exavoid Corporation’s worldwide profit, $1.5 million, will be taxed as U.S. income at a flat tax rate of 35%. It will pay $525,000 in tax.
Using this method, it will not matter whether the Exavoid Corporation is a U.S., multinational or foreign corporation. Corporations will be taxed based on where they sell instead of where they claim profits. This will eliminate tax avoidance by locating profit centers in tax havens and eliminate a motive for foreign countries to lower their corporate tax rates to get U.S. corporations to expatriate or otherwise move jobs, factories and profit centers out of the U.S. to keep their profits from being made here.
If a foreign company wants to do business in the U.S. it will be required to be taxed using this method on sales in the U.S. Profits and revenues of all subsidiaries worldwide of corporations selling products in the U.S. will be included in determining the tax, so corporations could not avoid the tax by transferring profits to subsidiaries not doing business in the U.S.
Some argue that we shouldn’t tax corporations because they just “pass through” taxes to their customers through higher prices. But corporate taxes are on profits, and companies optimally price their products to maximize profits. If they increase prices to cover taxes, they will reduce profits, which would be counterproductive. There will, therefore, be little or no effect on prices.
A possible reason prices may be reduced by the policy exists if corporate behavior mirrors to some degree individual behavior in response to higher taxes. As I showed in Part 1, historical evidence indicates that CEOs are less likely to take exorbitant incomes when top tax rates are high because they get a smaller portion of their pretax income above the income on which the top rate is applied. Excess corporate profits often result from abusing anti-competitive positions. Just as with CEOs, if taxes are higher, corporations will get a smaller portion of their pretax income, so they will have less of a motive to abuse anti-competitive positions to increase their income, in this case through abusively high prices.
Taxing corporations on their profits at a higher rate increases any motivation that corporations may have to pay workers higher wages since higher wages would reduce profits, which would reduce taxes. In effect, 35% of any wage increase will be paid by the government if corporations pay taxes at a 35% rate. However, we will reform current law to limit the deduction of compensation over 12 times the pay of the lowest paid worker in a corporation. Currently, some CEOs are paid annual compensation in the tens and even hundreds of millions of dollars, or thousands of times the pay of their lowest-paid worker. Corporations get to reduce their taxes by fully deducting these exorbitant amounts from their taxed profits.
No current limit exists on this deduction if the compensation is paid in stock options, pension, and deferred compensation or if it meets the conditions of a non-equity incentive plan. A regular salary limit of $1 million for tax deductibility exists, but this limit is routinely exceeded by using the loopholes of the prior compensation types.
The unlimited tax deductibility of top management compensation is an important cause of the enormous rise of income inequality, which, in effect, the government is subsidizing. New Enlightenment policies will eliminate this abuse of tax law and decrease inequality by motivating corporations to raise the lowest paid worker’s salary, stock or stock option compensation value if compensation increases at the top are desired. Corporations will still be free to pay higher than 12 times what goes to the lowest paid worker, but compensation in excess of this will no longer be essentially subsidized by the government through reduced taxes. (A mark-to-market capital gains tax for stock gains will be instituted, as described in Part 4, Note 1, pages 448-449.)
We will lead efforts to have an international agreement to tax corporations using this method. All countries have been damaged by corporate use of tax havens, and the race to the bottom in corporate tax rates, and rising inequality. Wouldn’t other countries welcome the U.S.’ lead in correcting these injustices?
Unfortunately, potential schemes also exist to avoid taxes using this tax system, but regulations could eliminate or greatly restrict them. However, the most beneficial way to eliminate avoidance possibilities is an international agreement on this taxing method. This method is the most just method of taxation since companies would, in essence, be paying for access to the market of the country or countries they would sell to. The more sales to a country, the more tax to that country is appropriate. If enough countries agree and put a high tariff on goods from countries that don’t participate in the agreement, this would be effective. If the U.S. advocated for such an agreement that would be in the best interest of all countries, it can be accomplished.
Great increases in corporate wealth have inevitably led to great increases in corporate political and media propaganda power. This trend is turning on its head the view that all reasonable people have had, that the purpose of the corporate form and the businesses that use it (and our entire economic system) ultimately is to serve the economic best interests of all of society. This policy will be an important part of turning it right side up again.
With the initial flat corporate tax rate of 35%, this method of taxing corporations will raise approximately $550 billion per year or about $350 billion more than the current system. These estimates are the result of District Economics Group’s detailed analysis of 2010 data. Since corporate profits of corporations taxable at the corporate level (C corporations) have increased by 20% from 2010 to 2012 the revenue gains will be higher. To be conservative in our budget analysis, we use the $350 billion District Economics Group determined. In Part 4, Note 6, we make a “ballpark” estimate of revenue gains that results in a similar, but somewhat lower, value to that resulting from the detailed analysis of the District Economics Group.
The top corporate tax rate in the 1950s and 1960s was between 51% and 52%, during a period of economic boom and before the period when giant multinationals motivated the spiral down in international corporate tax rates. After the international agreement on The New Enlightenment corporate tax method, we will seek agreement on a gradual increase in the rate to 55% of profits, equivalent to the New Enlightenment top marginal income tax rate on individuals. This will increase revenues by $713 billion per year. In our budget accounting, we use the $350 billion increase that will result from a 35% rate.
 Sales Factor Apportionment of Global Profits as an Alternative Construction of a Corporate Income Tax Base, Michael Udell and Aditi Vashist, District Economics Group, July 14, 2014
The New Enlightenment also details a carbon tax (pages 232-234) and pollution taxes (pages 234-236) that will both raise revenue and reduce pollution.