Wealth for the Common Good

Published in The Oregonian on 16 April 2010. Linked from OregonLive.

By Kenneth Lewis

I don’t love taxes, nor am I impressed with everything government does with my money. But at the end of this year, Congress should let the 2001 and 2003 federal tax cuts sunset for households with incomes of more than $250,000.

I have a responsibility to my country to pay my fair share so that we can make investments for future prosperity. My 30 years in business taught me the importance of orderly markets, an educated work force, public infrastructure and a functioning legal system.

I’m troubled by how two distinct tax systems have emerged in our country over the last three decades. One tax system contains loopholes and special provisions that enable wealthy individuals and global corporations to shift and hide taxable income and receive special treatment. The other tax system, applicable to everyone else, has few loopholes and is fairly straightforward: A portion of a working person’s earnings is simply withheld from his or her paycheck to ensure tax payment.

America’s premier investor, Warren Buffett, recently described his own experience with our two tax systems when he revealed that he pays a lower rate of federal income tax than his secretary. Buffett said he pays 17.7 percent in taxes because most of his income comes from investments, which are taxed at the lower capital gains rate of 15 percent. But his secretary pays more than 30 percent because her income comes from wages. Our tax system gives a preference to income from wealth, while income from work is taxed at higher rates.

Large global corporations also benefit from the privileged tax system with a wide array of loopholes and dodging schemes. For example, General Electric generated $10.3 billion in pretax income in 2009 but ended up paying nothing toward national security, infrastructure and property rights protections.

How did the company do that? One way is that global corporations like GE set up subsidiaries in foreign countries such as the Cayman Islands that have low or no corporate income tax. They claim their profits are made there and their losses are made in the U.S., thereby avoiding paying any U.S. taxes. A small business, anchored in our country, has to unfairly compete against companies with such loopholes.

According to a report by Wealth for the Common Good, a network of business leaders, high-income households and partners working together to promote shared prosperity and fair taxation, America’s middle class pays the same percentage of its income in taxes as it did in 1960. But over the same period of time, the wealthiest 0.1 percent of households, with average incomes of more than $7 million, watched their taxes decline by half. Income inequality in the U.S. has reached historic proportions.

The federal tax rate for the wealthiest people is at a historic low. Today, it is 35 percent, whereas between 1936 and 1980, it never went below 70 percent.

These tax shifts dramatize the urgent need to fix a political system warped by campaign cash and lobbying influence. As wealth and power concentrate in the hands of the few, the gulf between the two tax systems grows wider. To illustrate this point, the Wealth for the Common Good report shows how the richest 1 percent’s share of total personal income in the U.S. more than doubled from about 10 percent in 1979 to 23.4 percent in 2007.

I have certainly benefited personally from the privileged person’s tax system, but considering the federal deficit, I want to blow the whistle on it. As an individual and business leader, I believe we need to move toward having one tax system where everyone pays his fair share.

As Congress begins debate over what to do about the Bush-era tax cuts for the wealthy, I hope lawmakers have the bravery to let mine expire while extending the tax cuts for the middle class.

Between 2001 and 2009, the federal income tax cuts for households with incomes of more than $250,000 added $700 billion to our national debt. If we extend them, they will add an estimated $826 billion over the next decade. That would be very irresponsible.

In my global travels, I’ve seen that societies that do not have functioning and fair tax systems have lower standards of living, poorer public services and less economic mobility and opportunity. Taxes pay for roads, infrastructure, health, education and other essential services and public institutions that create the foundation for economic prosperity.

Taxes are the way we make investments to pass on prosperity and healthy communities to the next generation. Those of us who have greatly benefited from this amazing society have a special obligation to pay our fair share. I want all young people to pursue their dreams as I was able to.

Kenneth Lewis is former president of Lasco Shipping Co. of Portland and former president of the Port of Portland Commission. He is also former national chairman of the I Have a Dream Foundation and is a member of Wealth for the Common Good.

Published 28 April 2010. Linked from the Minnesota Spokesman-Recorder.

By Dane Smith

Don’t blame — or favor — the rich: A new report (by rich people!) finds that the wealthy are earning much more and paying much less in taxes. 

As the rhetorical wars on tax policy escalate, let’s allow right up front two important points about rich people and their taxes.

First, most wealthy and successful people in Minnesota and the United States can be celebrated. They should not be blamed, individually or as a class, for growing economic inequality and our increasingly regressive federal and state tax systems. They are not entirely responsible for the no-new-taxes orthodoxy and the public disinvestment that is threatening our quality of life and our prosperity in Minnesota.

Second, raising taxes on top-income households can only be part of a solution to our long-term budget crisis. Here in Minnesota, more revenue should be raised from ending overseas tax havens, modernizing and overhauling our entire state-and-local tax systems — and we can still actually reduce some unfair local business taxes.

Savings from redesigning and reforming government also must be realized.
But a highly regarded collection of billionaires and millionaires — including Warren Buffet, Bill Gates Sr., and hundreds of wealthy Minnesotans — have been trying for years to tell us that their taxes have been cut too much and they can indeed pay more.

In Minnesota, my own organization, Growth & Justice, earned a lot of attention four years ago with a full-page newspaper ad, signed by about 200 affluent and successful Minnesotans, declaring that “WE CAN AFFORD TO PAY MORE IN TAXES And We Can’t Afford Not To.”

This group is equally focused on a “smart investment” policy agenda for Minnesota, and reinvesting in education, transportation, a cleaner environment, public health and other good public stuff that builds community and human capital.

The good news is that at the national level, conscientious wealthy people themselves are speaking up about growing inequality and the growing national debt, and framing their obligation as a patriotic duty.

“Previous generations of upper-income Americans paid a much higher share of their income in taxes,” says Chuck Collins, an heir of the Oscar Meyer meatpacking fortune and co-founder of a new organization of wealthy individuals and business leaders, Wealth for the Common Good, based in Boston. “The taxes they paid, in the middle of the 20th century, became the investments in everything from scientific research to schools that laid the foundations for a vibrant economy and an expanding middle class.”

That statement appears in a report written by Collins and released by his group this month, titled “Shifting Responsibility: How 50 Years of Tax Cuts Benefited the Wealthiest Americans.”

The report lays out a case that has been made by many reputable research organizations, including Growth & Justice. It shows that effective tax rates on the income of those in the top one percent have declined from 45 percent to 30 percent since 1979, while the same group’s share of total personal income has risen from about 10 percent to about 25 percent.

Let’s put it another way: The richest Americans now have a 250 percent larger share of the nation’s personal income, and their effective federal tax rates have been cut by one-third.

Meanwhile, as the federal tax system has become less progressive, the state-local systems continue a traditional pattern of increasingly regressive taxation.

In Minnesota, the highly regarded Tax Incidence Study shows that the wealthiest one percent pay less than nine percent of their income in state-local taxes, while all other income groups pay an average of about 12 percent.

The report notes that this tilt toward favoring higher-income folks has been accomplished under presidents and governors and Congresses and legislatures of both political parties.

“Many conservative critics of our current federal tax system are calling for a ‘flat tax,’ a system that applies the same rate to all taxpayers, no matter how high their income may be,” the Shifting Responsibility report notes. “To a distressing degree, our overall tax system — federal, state and local — has already ‘flattened.’”

Wealth for the Common Good offers these solutions at the federal level to reduce the debt and restore at least some fairness to the tax structure: Sunset the Bush tax cuts as scheduled in 2010, restore a graduated estate tax on inherited wealth, end laws that permit overseas tax havens, tax financial transactions, or restore tax rates on capital gains.

Dane Smith is president of St. Paul-based Growth & Justice, a progressive research organization that focuses on economics and state-and-local budget issues.