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.