Idea: Rebate Social Security Taxes; Increase Income Taxes

Editor's Note: On February 6, we asked BlueOregon readers to suggest progressive ideas that the next Oregon Legislature should enact. Over the next several weeks, we'll post some of these ideas here - and ask you to discuss them. Good idea? Bad idea? Any suggestions?

From Ross Williams:

Oregon should move to end the regressive use of the social security tax to fund current federal spending by rebating 1% of both the employee and employer social security contributions, funded by a state income tax increase or surcharge. Essentially transform the income tax cuts for the rich to an income tax cut for wage earners and their employers.

Discuss.

Update: At suggestion from Ross, we've updated the headline for this post. Previously, it was "Idea: Shift the tax burden to the wealthy".

[If you have your own original progressive idea to propose, do it here: "There oughta be a law."]

Comments

  • Simp (unverified)
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    I've always said that the wealthy should carry a heavier burden. Their argument generally boils down to "Why should I be penalized for working hard?" Aside from the fact that hard work generally has little to do with it.

    My simple response is that the wealthy carry a larger responsibility to support the society which has created the structure and enviornment that facilitated their ability to become wealthy.

    It is their social and moral responsibility to carry a greater tax burden.

  • Tenskwatawa (unverified)
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    Tax advertising.

    Tax it as a sales tax, so the media selling the ad time ccollects a 'Sales Tax' added to the transaction, and then deposits the revenue proceeds in public monies.

    Maybe tax print advertising, (a ka a 'space' ads, or 'buying space.'). Discuss.

    Tax broadcast, or temporal media -- radio, TV, cable, movies(?), telephone ... oh, wait, we already tax telephone media ....

    The internet is the telephone system, as everyone knows. Some people don't recall when telephone (FCC) regulation set telephone utility pricing at a fixed rate irrespective of the 'conversation' on that telephone.

    So the subscriber paid the same fee per minute (rated 'short distance' or 'long distance' but charged by the time used in whichever category), regardless whether they only used the phone for family calls on Sunday afternoon speaking soft words in it, or if they used the phone to pass shouts of information to buy or sell stock and thereby made Big Bucks with their conversations on the line, and such phone service was 'more valuable.'. Similarly, electricity costs the same whether it is powering a relaxing back massager or something else, maybe an oven to bake cakes to sell -- production -- and making money off the electricity. Or gasoline costs the same regardless who is in the car -- unimportant persons or important persons, same price.

    These days there is much confusing talk about charging different phone line rates depending on the content of the phone call, that is, the 'type of data' going through the wire / air. Which means regulators have to 'listen in' on the 'conversation' (data) to know what to charge for the time the call lasts. There oughta be a law that regulates phone line usage charges only based on the duration of use, not the content it's used for.

    Tax on advertising ideas were talked about at least as early as TV's advent decade in the 1950s. Always the advertising agencies -- of which Portland is a premier player in the biz -- have threatened and intimidated politicians with the power of advertising over their political 'careers' each time Tax Ads has become a discussion, and always ended the discussion.

    May as well hook up the Tax Ads oughta-be-a-law with the Ban-Broadcast-Political-Ads (like we ban broadcast cigarette ads) oughta-be-a-law. Leaving politicians only 'space ads' to use graphic arts to persuade voters, and ideas in writing.

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  • Tenskwatawa (unverified)
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    Kari, my bad, I misread the post. I thought it said comment here with 'there-oughta-be-a-law ideas.

    I don't know what if anything you want to do with my spurious comment. It's okay if you are destructive with it ....

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  • Ross Williams (unverified)
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    "Idea: Shift the tax burden to the wealthy"

    That's an interesting idea but it isn't really what I was suggesting. It sounds like a Republican description for any proposal to reduce the tax burden on wage earners.

  • BlueNote (unverified)
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    "Tax the Wealthy"? Almost everyone likes that idea. Of course, once you start defining who is wealthy, support begins to diminish. To a minimum wage guy, people making over $50K are wealthy and should be taxed. To a "baby lawyer" making $100K, the partners who make $300K are wealthy and should be taxed. To a lot of Arlington Club members, people who make over a couple million a year are wealthy and should be taxed, If you are a trust fund baby, people on the Forbes 100 list are wealthy and should have their taxes raised.

    I agree that taxes are too low and should be raised, but I think they need to be raised across the board in a progressive and probably indexed manner. The 40 year old plumber in Gresham making 45K needs to feel some financial pain as a result of the Bush war(s) and other destructive policies, just like people making a couple hundred grand a year. Otherwise, Joe Sixpack will keep on voting for Bush and his Republican buddies while they spend our cities, states and nation into bankruptcy.

  • Bob (unverified)
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    My proposal to reform the tax system.

    Raise the social security cap to $120k and index it. Increase tax rates on those making over $500k a year. Increase the threshold on the AMT to $500k and up.

    The reason for that last one is that I know a number of people who are making around $250,000 a year (which granted is A LOT) but who are getting stuck with paying the higher AMT, which should not happen as the AMT is meant to primarily encapture those who make most of their money via stocks and not via salary.

    On the state level:

    Cut the income tax in half and raise the cap for the higher levels. Oregon's highest income tax rate kicks in at way too low a level.

    In its place institute a 4-5% sales tax, with the normal exemptions. It should be designed so the average middle class person sees no change in tax payments. The idea is to capture extra dollars from tourists and those in SW Washington.

    Raise the corporate minnimum tax to $250 and index it.

    Just some thoughts.

  • Bailie (unverified)
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    Bob, You say, "Raise the corporate minimum tax to $250 and index it."

    I hear this mentioned all the time and wonder what is the logic behind the statement? The corporate minimum tax applies to those corporations which have zero income or a loss. What is the logic in increasing the tax on an organization with zero income? I can understand perhaps changing deductions, but given existing tax law, I wonder your reason?

  • Charlie in Gresham (unverified)
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    BOB....your thoughts are close to mine.

    I'd collect social security up to about $250,000 a year though.

    I like your appraoch to the income tax....and cutting it in half would make a selling a sales tax more than probable.

    The only rationale for raising the corporate minimim tax to $250 is public relations. No real tax gain if the minimum tax on corporations without a profit is $10 or $250....but it looks and feels good to the those out there who can't do the math.

    Ben Westlund has voiced some very similar ideas on how we can restructure the Oregon tax system. The Repubs hate ANY talk of a sales tax and the Portland area Dems have NO tolerance for discussion of reducing the income tax. Since one idea won't fly without the other, Ben has been ignored by all.

    I'm intrigued by Westlund's foray into the Governors race. I'm hoping his campaign will get a serious discussion on our tax structure rolling. Who knows? If it has traction....so might his candidacy, although the odds are long.

  • LT (unverified)
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    Don't forget that about 20 years or so ago when Democrats controlled the legislature, there were anti-sales tax Democrats who did things as nasty to those they disagreed with as Scott ever did to Roblan, or as any anti-taxer has done to those legislators who disagree with them.

    It is about how the taxes are structured, not just "cut the income tax and have a sales tax".

    There are various people who have been around a long time who have ideas on how to structure a sales tax so that it hits tourists (restaurants, for instance) but doesn't hit low income working people ( groceries for instance). And I think there have been proposals to rebate sales taxes to people below a certain income level (makes more sense than giving rich people and corporations big kicker checks).

  • LT (unverified)
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    Bailie: If there were truly small companies making no profit, that would be one thing: I hear this mentioned all the time and wonder what is the logic behind the statement? The corporate minimum tax applies to those corporations which have zero income or a loss. What is the logic in increasing the tax on an organization with zero income? But didn't this become a scandal when Enron only paid $10?

  • Charlie in Gresham (unverified)
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    LT...you are indeed correct that 20-22 years ago there were some Dems who were VERY nasty in their opposition to a sales tax as well as some truly progressive ideas. My recollection was that those Dems were downstate conservatives but I'm old so don't trust any recollection of mine that spans two decades.

    I totally agree that a sales tax should exempt groceries (except those items currently exempted for food stamps) and prescription medicine.

    I'm not a big proponent of rebating sales taxes back to the poor....better to enhance the DHS budget so that the poor are better served.

    In any case, if the income tax was reduced, the kicker similtaneously ended, and a fair sales tax enacted that provided an overall revenue increase of just 2%, Oregon would be able to provide solid funding to the schools and avoid 170 million dollar shortfalls in social services.

  • Bailie (unverified)
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    LT, Enron lost more than the corporate minimum tax for Oregon. The minimum tax was about the least of consideration for them. Their unique situation has very little to do with the logic for raising the minimum corporate tax. I personally hope that the trial taking place at this time, sends all of the players to prison for quite awhile.

  • Ross Williams (unverified)
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    Raise the social security cap to $120k and index it. Increase tax rates on those making over $500k a year. Increase the threshold on the AMT to $500k and up.

    These are also interesting but they are not things the state legislature can enact. But the legislature can transform the federal tax system to make it more progressive within Oregon. Social security is only paid on wages (and the self-employed). B

    y shifting the costs of the tax to a progressive tax on all income the costs to both employers and wage earners can be reduced while allocating the actual costs of government more equitably regardless of the source of income. It might also make Oregon a better place to do business for those who have high payrolls.

  • mrfearless47 (unverified)
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    simp writes:

    Their argument generally boils down to "Why should I be penalized for working hard?" Aside from the fact that hard work generally has little to do with it.

    rant on I completely resent the implications of your statement. My wife is a physician and I'm a retired college professor/administrator. By anyone's definition our income is in the upper 10%. I spent 10 years post high school getting my education at considerable personal expense. My wife's education and training took her 16 years post high school, including residency. During my 12-month per year working life, I typically put in a 70 hour workweek. My wife's normal work consists of 12 hour days, not including time on call. We both incurred a fair amount of debt to "make our fortunes". The implication that we are rich because we didn't or don't work hard is an insult. Add to that, the fact that as 95%+ of our income is from W-2 earnings (or 1099R) means that we get cut NO slack on our taxes. We pay 47 cents of every dollar we earn in federal, state, multco, property, social security, and medicare taxes. Of that, 39% is federal, state, and multco.

    When we talk about wealthy people, let's not forget to make the distinction between the people who derive their income from actual wages versus those whose income depends largely on UNearned income.

    This is what pisses me off about progressive and left-leaning Democrats - the continued demonization of the wealthy without drawing a distinction between wealthy wage-earners who DO pay their fair share, and the wealthy political donor class whose income isn't exposed to the level of taxation we working folk are.
    rant off

  • Robert Harris (unverified)
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    I like this idea. Raising the SS tax and reducing income taxes, then running huge deficits are the National Parties' way of taking from those who work for their money and giving to those whose money works for them.

    Bob and Charlie in Gresham propose making it worse by raising the threshold for wage income subject to this insidious transfer of tax responsibility (I assume they don't also propose that SS benefits increase accordingly for those with higher wages).

    An alternative, or perhaps ancillary, idea to Ross' idea is if the Feds instead imposed a 1% flat tax on all non wage income (cap gains, dividents interest income etc) and used that revenue to REDUCE the threshold, or reduce the rate of payroll taxes.

  • oregonj (unverified)
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    The OR income tax system is quite regressive no matter how you look at it. Though the rates are relatively flat, higher incomes are actually taxed at a lower rate because of the underreporting of all income except wages; i.e. capital gains, partnership...... This is compounded by the regressiveness of the $4500 federal income tax deduction that effectively reduces the higher income taxpayer's bill more than the lower income.

    In the short term, a patch could be to replace this deduction with an equivalent amount of revenue going to a refundable credit on the SS tax.

    In the long run, given our comparison with WA, and with the increasing regressiveness of the OR income tax, progressives should be supporting a sales tax with the proper exclusions. Oregon's income tax is beyond repair, the income tax will grow more regressive, state income based on the federal system will become more skewed, and underreporting by the well-off is increasing.

    Progressives should support an initiative replacing the income tax with a well-designed sales tax. And by the way, this will add visitor income, and reduce the border-hopping losses.

  • djk (unverified)
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    I quite dislike sales taxes; they tend to be regressive. They are also very easy to avoid, particularly taxes on goods in an era of internet commerce. I'd rather see targeted excise taxes (restaurant meals, hotels) than a general sales tax. Most tourists I've met appreciate "tax free shopping" (or at least the appearance thereof).

    If we do want to go down the general sales tax road, better to impose a small gross receipts tax (say, 1% to 2%) than a general sales tax. It taxes the same transactions as a sales tax (and some that a sales tax would miss such as out-of-state catalog sales) but at a lower rate, is "invisible" to tourists, and can be deducted as a business expense on federal taxes. It also would be far easier to implement than a sales tax: simply add one or two more lines on the state income tax form.

    As for the income tax, it should be restructured to be a meaningfully graduated tax, and indexed annually. Say, 2.5%, 5%, 7.5% and 10% rates, with the brackets set as multiples of the hourly minimum wage (which currently adjusts for inflation each year) and a large exemption at the bottom. If we follow Ross' suggestion, make the rates higher, perhaps 3%, 6%, 9% and 12%, to support substantial rebates of social security taxes to both employers and employees.

  • Ross Williams (unverified)
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    impose a small gross receipts tax (say, 1% to 2%) than a general sales tax. It taxes the same transactions as a sales tax (and some that a sales tax would miss such as out-of-state catalog sales) but at a lower rate

    How would you limit a gross receipts tax to retail sales? And if you don't aren't you going to essentially taxi the same product several times if it is distributed through several wholesale transactions, while taxing it only once if it is distributed by a large retailer.

    I think the alternative to a sales tax at point of sale is a value added tax. With a value added tax you tax the markup at each level. So if someone buys apples, slices them and sells them at a profit they pay a tax the value they added to the finished product, the difference between the cost of the apples and the cost of the sliced apples.

    Of course suggesting a national valued added tax is what cost Al Ullman, the longtime head of the House Ways and Means Committee from Eastern Oregon, his spot in congress. He was attacked for supporting a "national sales tax."

    I think people are under an illusion if they think Oregonians will approve a sales tax of any kind.

    My proposal was shift the portion of the social security tax that isn't paying for current benefits to the general taxpayer, rather than imposing a burden on wage earners. We can equalize that burden in Oregon regardless of what the Republicans choose to do in congress.

  • Robert Harris (unverified)
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    Ross: I know that we're off topic on your original idea, which I think has a lot of merit. But A gross receipts tax on all business is exactly what Washington does, which it refers to as a Business and Occupation tax. I don't see much difference between it and a value added tax, except its easier to administer. It may not be as ideologically correct if you're trying to precisely measure and tax the economic benefit to a company, but at 1% comapnies can easily adjust. After all, Washington Businesses are doing at least as well as Oregon and they've lived with this tax for a long long time.

    An added benefit is that all those business persons who meet at the convention center and gripe to our public representatives about Oregon not investing in its education and infrastructure would certainly support such a tax.

    And while businesses may try to define a B&O tax as a hidden sales tax, to be passed on to consumers, they say every tax on businesses is passed on to consumers, so is in essence a sales tax.

    Oregon needs to impose a greater share of public financial responsibility on the businesses. The B&O tax is the simplest way. And I believe the people of Oregon would understand it and support it.

  • Ross Williams (unverified)
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    An added benefit is that all those business persons who meet at the convention center and gripe to our public representatives about Oregon not investing in its education and infrastructure would certainly support such a tax.

    You are being sarcastic aren't you?

  • Robert Harris (unverified)
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    uh...yeah

open discussion

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