The Only Really Good Tax Idea: Tax the Rich More, The Middle Class Less

Conservatives want to reduce taxes on the rich in order the shrink the size of government. Liberals want to increase taxes on the rich in order to increase the size of government. Both conservative and liberals use convoluted arguments that purport to show their own idea would help the middle class. Neither argument is very convincing.

There’s really only one way to help the all-important middle class demographic. Not with think tank theories or indirect down-the-road hopes. This better way is direct and simple, and would allow our national economy to escape its endless doldrums.

This better way is to tax the rich more, and use the extra revenue generated to reduce the tax burden on the middle class. Not an overall tax increase, but a dramatic shifting of the tax burden.

There are many ways to do this. Flatten the payroll tax, for example, and expand its reach to all incomes, earned and unearned, thereby allowing a payroll tax rate of 4 or 4.5 percent for all taxpayers, rather than the 6.2 percent currently levied just on the middle class. A similar approach could be applied to income taxes, raising the top rate from 39.6 percent to 43 percent, while lowering middle class rates of 25 percent and 15 percent to 22 and 12 percent respectively.

A transaction tax on stock market trades that would hit Wall Street’s high frequency traders, who account for more than 60 percent of all trades these days, could generate revenue used to reduce middle class tax rates of 25 and 15 percent further. A higher inheritance tax that takes more from wealthy heirs and passes on still more tax savings to 25 and 15 percent taxpayers. Many other possible tax transfers are out there for anyone bothering to look.

And what would be the effects of all this tax transferring, this shift in the tax burden? More spending power for the middle class that is this country’s spending engine, currently in deep sputter mode. More jobs created by this spending. Fewer people falling from the middle class into poverty, reducing the need for more government subsidies. Smaller government deficits as the economy speeds up. Larger profits for companies selling goods and services. And on and on.

The present conservative idea about taxation is cruel, economically destructive, disruptive to our social stability. The present liberal idea about taxation is outmoded, unsustainable, a threat to investment and innovation. Neither idea is what’s needed today.

It’s time to get out of the tax hole both our major parties have dug. Time to think new again. Tax the rich more. Tax the middle class less. Save the economy.

Let’s do it.

(Murder At Bernstein’s, a novel by the author of this piece, is now available from Amazon.)