Oct. 21 (Bloomberg) -- So I sat down to write up some demands for Occupy Wall Street, Occupy Washington and the related groups that have sprung up to terrify the political and financial establishments.
Not everyone thinks demands are a good idea. Could this disparate collection of malcontents actually agree on a platform? Would the attempt destroy the almost magical unity the protesters have achieved? Might a list of demands -- or, as they were called in the 1960s, “nonnegotiable demands” -- turn out to be embarrassingly anti-capitalist, offering grist to the Glenn Becks of this world and turning off many potential recruits? Or might it be the opposite: so banal and unambitious that the most devoted followers lose interest?
My list is not very romantic; it’s all about taxes. It has nothing to offer those who would like to see a banker or two guillotined. In that sense, it doesn’t do justice to the Occupy movement, which has inspired excitement even among many who haven’t attended a rally. On the other hand, working on my list, I ran into the same problem as when I tried to distill the goals of the Tea Party movement. What these people want can’t be supplied by government or Wall Street. They need the tooth fairy.
To take the obvious example, we can spend hundreds of billions of dollars on another stimulus or jobs program. But we do have to pay the money back. It’s not good enough to say that now is not the time to worry about that. Now may not be the time to actually start paying down the debt, but now is certainly the time to commit ourselves to doing so, and that has to be part of any well-conceived demand. There are no free lunches.
My Four Demands
Conservatives who believe that raising taxes is futile and self-defeating may skip the rest of this sermon. There probably aren’t many of them among the Occupy protesters, anyway. Liberals who believe we can run up deficits indefinitely with no harm done may also stop reading.
Anyway (drumroll, please), here are my four demands.
First, a really humongous jobs bill. Big enough to shut up even Paul Krugman.
It could take the form of an infrastructure construction program like the WPA during the Great Depression. But if it were up to me, all the money would go to a reduction in the FICA Social Security tax. FICA is a direct tax -- now about 15 percent -- on every job in the country, with payment split between workers and employers. Reducing it would increase the demand for labor. It applies only to income from working, not from investments. Very low income people -- who don’t even make enough to pay the regular income tax -- must still pay FICA from dollar one. And FICA doesn’t apply to incomes over $106,800 in 2011. A cut in the FICA tax would reverse that effect, benefiting only working income, starting at dollar one and stopping at $106,800. It could begin very quickly, unlike a public works construction project, and we could be sure that every penny was going to jobs.
President Barack Obama’s jobs bill includes incentives for new jobs, but saving an old job is just as good as creating a new one. In this economy, it’s the rare job that isn’t at some risk of disappearing. A FICA tax cut treats all jobs equally, and avoids arguments.
If you prefer, a big infrastructure program would be OK, too. Orthodox Keynesianism says that dollar-for-dollar, government spending provides more stimulus than returning the money to people in a tax cut. That’s because government spending is by definition all spent, whereas private citizens might unsportingly insist on putting their extra money in the bank. But Keynes never met this Republican Congress. Any public works program will generate tiresome arguments and accusations of waste, delay, corruption and so on. Worse, some of those accusations will be true. But how could Republicans object to a huge tax cut?
Next Up, Investments
Second, abolish capital gains. (That’s shortened for easy use on a placard. I mean: Abolish the special tax break for capital gains. Dividends, too, for that matter.)
While profits on investments are currently taxed at a maximum of 15 percent, the tax on wages is a minimum of 15 percent (including Social Security). That’s why Warren Buffett pays less of his earnings in taxes than his secretary. It’s why hedge fund managers, whose income takes the form of capital gains, enjoy a break.
Defenders of special treatment for capital gains justify it by arguing that income from small businesses and other corporations is taxed twice: first at the corporate level, then again when an individual shareholder sells the stock or gets a dividend. But no one is required to do business as a corporation. Business owners can always choose not to incorporate and to pay ordinary income taxes on their respective shares of the profits. If they choose not to, it’s probably because there is a tax advantage to incorporation, not a disadvantage.
Third, end the Bush tax cuts -- for everyone.
In 2001, George W. Bush devilishly put through a large tax cut that would expire shortly after he left office. Obama would like to make the tax cut permanent for couples with incomes of less than $250,000, but not for those making more. This would, in essence, be the tax increase on the affluent that Obama wants. Republicans would make the cuts permanent for everybody. This is backward: The Bush tax cuts should be allowed to expire for everybody, rich and middle class. This would return tax rates to the level of the Clinton years.
Fourth, expand the estate tax. That same Bush 2001 tax cut included a gradual elimination of what Republicans brilliantly repositioned as the “death tax.” But if we must generate more revenue, which we must, why not get a bit of it from people who are in no condition to feel the pain?
For now, estates worth more than $5 million are taxed. Any expanded estate tax will undoubtedly have generous exemptions so that people can help their children. And anyone who doesn’t want the government to get any of his or her money can bequeath it instead to one of thousands of tax-deductible organizations, and pay no taxes on the amount donated. Anyone who can’t find some tax-deductible charitable cause that suits his or her prejudices is a nasty old coot.
(Michael Kinsley is a Bloomberg View columnist. The opinions expressed are his own.)
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