Argument: Progressive tax rates end up squeezing the middle class
Edwin R. A. Seligman. "Progressive taxation in theory and practice". American Economic Association. 1894 - The System Favors Present Owners of Large Fortunes
What the progressive income tax cannot do is to cut down the money-mobility of the rich. A man with a fortune can protect his equity by moving money about on the board of opportunity. He can invest his money in supermarkets in Venezuela, or buy oil rights in Western Canada, or become a partner in swiftly growing industries such as plastics, electronics, or aviation. Thus he can circumvent the ravages of inflation and expand his fortune via capital gains.
But while the well-to-do have a continuing access to opportunity (which they can also open to their sons by making them partners in expansive situations), the middle classes are denied the chance of building fortunes in the first instance to protect. Under progressive taxation an Averell Harriman, a Joseph P. Kennedy, a John Hay Whitney can keep their financial status (and even become ambassadors to the Court of St. James). But the deck is stacked against the emergence in our times of new ambassadorial material. During the past generation the “middle condition of man” has been ground between the upper and nether millstones of inflation and steeply rising progressive tax rates. Reckoned in terms of “disposable income” in “1939 dollars,” the purchasing power of the $18,000-a-year man in 1961 is no more than that of the $6,000-a-year-man of 1935. If the middle income man has been committed to insurance payments, his equity in saving has been cut in half. But the rich, who have invested in the insurance companies, have preserved their equities intact.
Soak the Middle Class, Penalize the Erratic Earner
The fairness of the tax even within its own “ability to pay” rationalization is entirely questionable. The tax exempts the poorer taxes them at such a low rate of progression that it is negligible. And, as we have seen, it tends to exempt the rich, who have ways of compensating for loss of dividends by the capital appreciation route. It is the people in the middle income brackets who do most of the paying. Thus what started as “soak the rich” has become “soak the middle class.”
Harold Ford, Jr. "Flat Tax for Middle Class". The Washington Times. 29 Nov. 2007 - We ended the last century with America's economic might at its zenith, with Americans at their most optimistic, and with nearly all who endeavored to make the most of their opportunities and talents getting ahead in life. John F. Kennedy's declaration that a rising tide will lift all boats was alive and well.
Middle-class Americans generate little or no national savings. We've had four straight years of rising productivity and falling incomes. Many Americans are earning less, while the costs of a middle-class life have soared: In the last five years, college costs are up 50 percent, health care up 73 percent, and gasoline more than 100 percent. Rising housing costs have driven people farther and farther from their work.
These trends undermine our way of life because middle-class strength and growth represent the backbone of American life.
Our national political discussion about how to grow the middle class often becomes just that, a political discussion punctuated by harsh talk of "class warfare." In fact, class warfare is under way - as billionaire Warren Buffet is fond of saying - and the middle is not winning.
To address the challenges of the middle class, Democrats should advance an agenda that aims to do something loftier than just repeal the Bush tax cuts on millionaires. It should boost incentives for average Americans to increase savings and investments, and help them participate more fully in the upside of economic growth.
Toward that end, here are a few ideas that will help more people share in the rewards of the modern economy:
- Middle-class flat tax: This is simple and fair: no middle-class family with an income of under $150,000 should ever pay an effective tax rate of more than 10 percent. If what they owe after calculating their taxes is more than 10 percent of their income, they won't have to pay a dime above 10 percent. If they owe less than 10 percent, they pay the lesser amount.
Arlen Specter. "How a Flat Tax Can Be Middle-Class Friendly". New York Times. 18 July 1995 - The arguments that a flat tax will raise taxes for lower- and middle-income families and that nontaxation of interest, dividend and capital-gains income is a tax break for the wealthy are demonstrably false. Under a flat-tax system, business income is to be fully taxed at the source, with no credits and no deductions other than for wages and direct costs, so that investment income is taxed -- fully, but just once -- before it is paid out to the investor.
True tax reform will focus on maximizing productivity and global competitiveness and spurring job creation. True reform will put money into the pockets of working Americans by creating more and better jobs. ARLEN SPECTER U.S. Senator from Pennsylvania Washington, July 13, 1995