Even if Paul Ryan's latest draconian budget plan gets safely filed away and forgotten, all forms of discretionary government spending face a relentless squeeze over the next decade. President Obama's own most recent proposed budget would bring such spending down to levels not seen since Eisenhower. Why all the pain? Because many Democrats would rather cut crucial programs than mount a fight to raise taxes. Specifically, Obama's FY 2015 budget would cut non-defense discretionary spending by around 30 percent as a share of GDP, while raising the share of national wealth going to taxes by just 10 percent of GDP.
Clear alternatives exist to this bleak future, such as the budget plan laid out recently by the Congressional Progressive Caucus which included substantial new revenues. Strangely, though, there is no real intra-party battle going on among Democrats over taxes. The Obama vision of downsizing government is largely dominant, while the CPC's tax ideas don't tend to get much attention. Progressive critics of the president's stance on taxes seem few and far between, and it's been left to Grover Norquist to note that Obama made permanent 85 percent of Bush tax cuts when he agreed to the "fiscal cliff" deal, ceding the right a historic win.
All this needs to change, and one way it could is if there is more energy around specific tax reform ideas that would appeal to most Americans and could raise lots of money. Here are my two top candidates, both of which are quite simple:
First, tax capital gains at the same rate as income. This one is easy for anyone to understand: Income is income, whether you get it from flipping burgers or flipping stocks, and it should be treated by the IRS the same way. According to the Center for Tax Justice
, this reform would raise $76 billion dollars in 2015, and really big money over the next decade. Indeed, this reform could negate the need for many of the domestic budget cuts now planned. And since most capital gains and dividend income goes to the top 1 percent, it could also help reduce inequality.
Second, end the deferral of taxes on foreign income. This one is more complicated, but still pretty easy to grasp: When a U.S. corporation earns money overseas, it should be taxed on those profits that same year. As opposed to current law, enacted under George W. Bush, which is that companies can defer these taxes until they bring the money back to home, whenever that might be. But what's happened is that corporations have let giant profits pile up overseas in tax havens. Changing this part of the tax code would bring in $67 billion in 2015 according to CTJ.
So these two reforms together would yield very substantial money -- enough that we don't actually have to rewind spending back to Eisenhower's day. And there are other good ideas out there, too, for reforming the tax code in ways that yield big dollars and would appeal to most Americans.
Now these ideas just need some good ole fashioned "tax-and-spend" Democrats to champion them.