Time to Return to the Broad Based Progressive Income Tax

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Eye from Albany
February 2003

Quote of the month: “What we call ‘citizenship’ today-an essentially passive legal status involving only minimal civic obligations and relying on a distant and entrenched elite-is but a shadow of the Athenian politeia.” From Beyond Empowerment: Building a Company of Citizens by Brook Manville and Josiah Ober in the Harvard Business Review, January 2003

Time to Return to the Broad Based Progressive Income Tax
by Paul M. Bray

When the pendulum swings too far to the left or right excess occurs. That is what may be happening today when it comes to taxation.

President Bush’s tax cut proposal and Governor Pataki’s avowed commitment to maintaining scheduled tax cuts and even adding some new tax business tax incentives (with the intent of keeping New York the “tax cutting capital of America”) in the face of monumental deficits graphically demonstrates how far conservatives have changed the accepted wisdom from broad based income tax progressivity that prevailed in the decades following World War II.

The current phobia over taxation and especially the progressive income tax took hold during the Reagan Administration in the 1980s. It was buttressed by a sea change in the attitude towards taxation of students educated in the 1980s and afterwards. Say anything positive about progressive taxation to them, the immediate reaction usually is “We shouldn’t penalize someone who succeeds in making money by taxation”. Today, the conservative mantra is let the citizen determine how to spend his or her money. That may be fine when it comes to shopping for food, clothes and vacations, but it doesn’t help support the best education, transportation and environment we all deserve.

Instead of progressivity our political leaders have increasingly depended on debt, gambling and fee hikes along with regressive sales and property taxes in good times. Now in what has been called the worst fiscal times for states and localities since World War II, it looks like many will opt for cutting services in many cases to the bone.

Someone educated in the 1950s and 60s like I have a different take on taxation than today’s prevailing wisdom. Parents during that era were affected by the depression. They had and communicated a positive view of what government did to successfully help the nation cope with the depression and defeat our enemies in World War II. Government programs depended on taxation and the fact that the American system was based on a progressive income tax which was viewed as a positive.

Those who made the most money paid progressively higher taxes because our democratic system offered the conditions that allowed them to succeed. The more one succeeds, the more able he or she is able to contribute to the nation to help government do the public’s business. Certainly, there has been no shortage of success at the upper levels in recent decades. In the last three decades the average real compensation of the top 100 CEOs went from $1.3 million to $37.5 million, more than enough to justify some pay back to society.

Chief Justice Oliver Wendall Holmes said, “taxes are what we pay for civilized society” and that he was happiest on the day he made his annual tax payment because it represented his paying back to the society he valued.

Somehow the idea of paying back has been lost in the public mind. (Times columnist Paul Krugman pointed out that when asked what the parents of today can tell their children when asked what they did to help the nation in the war on terrorism that they took a tax cut that their children will pay for.)

While I have heard many anti-tax conservatives like Mary Matlin use President Kennedy’s tax cuts as justification for cutting taxes to stimulate the economy, I never hear them talk about Kennedy’s call to citizenry to ask what they can do for the nation. Since Kennedy was President the burdens of citizenship like the draft and taxation have decreased and the public has responded by its ever declining rate of voting. The success of the anti-taxation forces has hardly encouraged a civic revival. Instead it seems to have anesthetized the public by trumping commitment to societal goals that gave us the Interstate Highway System, Pure Waters Program and the State University System for immediate personal benefits with the richest amongst us getting the greatest benefits.

Back in the 1970s progressivity reigned in New York State. Its income tax had 14 brackets from 2 to 15% with, from time to time as need dictated, 2.5% surtax. The highest rates were mitigated by tax loopholes. Today, the top income tax rate is 6.75%. The highest Federal Income Tax rate has fallen from 70% to 40%.

Business interests through organizations like the Business Council in New York State and other conservatives have been unrelenting and effective with messages about lower tax rates creating more jobs. They also played on fears of governmental waste. At the same time as these messages have been tying the hands of government, we have been moving into an information economy with jobs growing from industries of the mind. It has been increasingly evident that in order to be economically competitive we need the best that government can foster in areas like education, high tech and bio-medical research, transportation, environmental facilities, renewable energy and now security. It is public investment supporting collective action that creates jobs, not tax cutting.

Under the anti-tax mind set we live under, we are not only without adequate funding for basic services and the new challenges of home land security, we are going to be without the funds to pursue excellence in education, environment, energy, cities and other critical competitive areas for the state and nation. Eight states are so strapped that they have cut the school week to four days. Other states are releasing prisoners because they can’t afford the prison expenses. Governor Pataki’s budget opts for deep cuts in state services. Instead of a progressive tax increase to meet revenue losses, local tax rates are going to continue their upward climb and fees and other charges like a 41% increase in SUNY tuition are going to be levied.

There are some signs that the tide may be turning back to broad based progressive taxation. Economic scholars like Joe Slemrod of the University of Michigan, author with Jon Bakija of “Taxing Ourselves”, contradict the notion that high taxes reduce growth. Slemrod finds little evidence, for example, that workers put in more hours when tax rates fall or fewer when they rise. The facts are also not supporting the assertion that high marginal tax rates erode entrepreneurial spirit.

Couple these findings with the excesses from the wealthy classes (what have former ENRON and Tyco CEOs, respectively, Ken Lay and Dennis Kozlowski who took home 100s of millions of dollars, done for the nation?). Progressive taxation (what they and others who have prospered can do for their county) may increasing seem not only reasonable, but an imperative in the face of home land security needs, draconian cuts in public services and dependence on increases in regressive fees, more gambling and the social costs that come with it and property taxes.

The real question in New York is who will carry the ball for progressive taxation. Assembly Speaker Silver made the opening move for an income tax surcharge but it is still too early to tell whether the progressive interests in New York can get their act together for a broad based progressive tax strategy or whether each sector like health, education, environment and public employees will go its own way as happened in the recent Governor’s election in cutting the best deal it can for itself and the hell with the common good.

If the deck continues stacked against a reasonable broad based progressive tax increase, there is little likelihood for maintaining and growing the public goods necessary for creating a rising economic tide in New York and the nation. The public may finally wake-up from their growing passivity. Stay tuned.

Paul M. Bray is President of P.M.Bray LLC, an Albany based environmental and planning firm. His e-mail address is PMBRAY@aol.com.

Paul M. Bray is President of the P.M.Bray LLC, an environmental and planning law firm in Albany. His e-mail address is pmbray@aol.com and past columns can be found on www.braypapers.com