This article originally appeared in the Washington Post on March 15, 2005.
A presidential advisory panel has quietly begun work on the critically important issue of tax reform. It does so against a political backdrop that makes it appear increasingly likely that the president's twin domestic goals of reforming Social Security and the tax system will merge by the summer.
This is a time when progressives would be wise to apply some of the lessons from the battle over the president's 2001 massive tax cuts for the wealthy.
President Bush put the debate in a philosophical, value-driven framework. He asked, "Who do you trust with the people's money, the people or the government?" He then unleashed the special interest groups to lobby for the tax giveaways covered by this theme, which implied that they were fighting for the people instead of their narrow interests.
We ended up with a tax bill that produced exploding deficits, protected the special interests, undid the progressivity of the tax code, and laid more of the burden on wage earners and less on those with investment income. But our arguments against it were never heard; we didn't offer a larger progressive counter-narrative, and we didn't offer a tax cut alternative worthy of its name.
Hampered by these strategic errors, the Democrats were left with a "just say no" campaign that ultimately was not much of a match for the president's considerable lobbying effort. What Democrats offered as an alternative was simply a little less of what the president had in mind. The truth is that the president's tax changes weren't just bad fiscal policy; they were the wrong thing to do.
But we lost more than the vote; we also lost a crucial opportunity to remind people that progressive values — the belief in an expanding middle class and in providing the greatest rewards for people who work the hardest — promote both economic growth and economic justice. These are ideas that are more relevant and needed than ever, because we live in a world where global competition is rising and wages, benefits and incomes are under much pressure; it really matters who reaps the rewards of tax policy.
The 2001 tax debate was just a warm-up. The real sweepstakes will come as the administration pursues comprehensive and permanent tax reform. Progressives must do more than argue against the president's additional tax cuts. They need to offer their own comprehensive reform plan. They must also seize the moral high ground on this issue. Comprehensive tax reform should be based on three principles: a commitment to fairness, rewarding hard work and the belief that a good tax system must be easy to understand. In addition, reform should aim to promote new opportunity and shared prosperity for the middle class, which only come through economic growth.
The Center for American Progress has put forth one such comprehensive tax reform plan that meets these tests while reducing the deficit.
The center's plan would create a fairer tax system. It would equalize the treatment of all income — wages and capital income alike — by taxing each source of income according to the same rate schedule. The plan shifts taxes away from the regressive payroll tax by eliminating the 6.2 percent that employees pay on their wages. The number of tax brackets is cut in half, and we replace them with a fair, progressive three-rate structure with marginal tax rates set at 15, 25 and 39.6 percent. Eligibility for the child tax credit is expanded.
By reducing payroll taxes and restructuring the income tax we are able to provide lower taxes for the poor and the middle class, who are disproportionately affected by the payroll tax, while still raising enough revenue to meet our vital commitments to domestic and international priorities and to enhance retirement security. For the vast majority of households with incomes under $200,000 a year, the center's plan would offer a tax cut in the neighborhood of $600 a year or more.
The center's plan would help America climb out of debt and strengthen the economy. By restoring fiscal discipline and equity over the next 10 years, it would generate nearly $500 billion in new revenue to reduce the deficit, thus increasing national savings.
And the plan would simplify the tax code. Under President Bush, the tax code and related regulations have increased by 10,000 pages. Unless you are a tax attorney, this is not a positive development. The center's plan would also invest in enforcing existing corporate tax laws and closing loopholes, many of which encourage companies to send American revenue and jobs to other countries. The plan also eliminates the alternative minimum tax, which threatens to make tax filing even more maddeningly complicated for more than 30 million middle-class families by 2010.
Progressive tax reform would enhance economic opportunity and overall retirement security. It would guarantee additional revenue to the Social Security trust fund and cut in half the long-run difference between dedicated revenue and outlays. It also offers new incentives to save by providing all Americans a 25 percent refundable tax credit for money saved for retirement.
Conservatives will argue that to have a simple tax code, you have to have a regressive tax code. Don't believe it. We can have a tax code that is simple, rewards hard work, expands economic growth and opportunity, and is fair to all. This is a fight that the president's opponents can win. But they must get on the field.
John Podesta is the president of the Center for American Progress and a visiting professor of law at Georgetown University.
Read the American Progress Tax Plan, a chapter in the Progressive Priorites Series.
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