Good Tax Policy

Gene Sperling writes about progressive taxation as an important form of social insurance and risk-sharing:

FT.com / Comment & analysis / Comment - How to reform a winner-takes-all economy : Progressive taxation is critical to marshall the resources to ensure that those who end up at [failing companies like] Lucent or Delphi have the support and education to get second and third chances in the global economy. Without a greater cushion against falls in the global economy, workers may opt to take less risk on their future, just as entrepreneurs would risk less if they thought a single bankruptcy would land them in debtors’ prison.

Furthermore, a tax system that eases the [luckiest one's] tax-free wealth accumulation but forces his brother to pay higher taxes on income earned through labour betrays American values that honour the hard work of the middle class over policies that perpetuate an economic elite. A better tax reform plan would prevent the most privileged Americans from paying lower taxes on their investment than typical families pay on their wages, while encouraging savings and wealth creation for struggling workers. We could start by ending our current system of giving those in the highest tax brackets more than twice the tax deduction of typical workers and creating a flat tax incentive for savings – a 30 per cent credit for everyone. More important, we should provide automatic matching credits for moderate income workers to save – essentially creating a universal 401(k) plan for retirement savings accounts for all Americans.

So if the president really wants to build support for greater openness in the economy, he needs to focus on tax reform that expands the winners’ circle, not reform that expands the current winners’ fortunes.