Center for progressive economics

Decoration Icon

CPE Articles, Essays and Position Papers


— Page 6 of 10


There are many websites, newsletters, books, etc. on tax policy. Following are only the general important concepts and the defense of Progressive tax policy.

The Progressive Income Tax is one of the fairest taxes as it is based solely on the ability to pay. What is important is not how much any individual earns but how much is left over to be an adequate consumer and saver for retirement. This bears repeating: It is not important how much one pays in taxes but how much money is left after paying taxes! Creating quality consumers is essential to tax policy and therefore the Progressive Income Tax is the key to sound government fiscal policy in offsetting flaw number one.

If substantially more fiscal programs are funded through a diversified monetary system, we can actually lower the income and payroll taxes brackets and still balance the budget! This creates even better customers, clients and consumers.

Of course, actually rates and tax policy is the prerogative of Congress. This will give you and them an idea of what the tax brackets should be. These brackets are based on taxable income (after all deductions) and it includes an individual’s payroll taxes, capital gains taxes and taxes on dividends. They are also not retroactive.

  • $0 – $50,000 NO income or payroll taxes
  • $50-100,000 5%
  • $100-150,000 10%
  • $150-200,000 15%
  • $200-250,000 20%
  • $250-300,000 25%
  • $300-350,000 30%
  • $350-400,000 35%
  • $400-500,000 40%
  • $500-999,000 45%
  • Over $1,000,000 50%

This would give a tax bracket cut to over 99% of the U.S. population!

The estate tax is also a very fair tax because the taxpayer is dead and no longer in need of their money. It is levied only on the very, very rich. It is the best tax to offset the first flaw above – the rich getting richer – which reduces the number of consumers and the ability to build wealth. Importantly, there are provisions to help family farms and businesses. And, contrary to some opinions, many of these assets have never been taxed!  It reduces “Economic Royality” which eventually causes the economy and society to fail.

Collectibility in tax legislation always has to be considered in specific tax regulations and laws. The capital gains rate at 15% is substantially below the maximum wage rate at 35%. But, the lower the capital gains rate, usually, the more transactions resulting in more total tax revenues. Ease of tax avoidance and evasion is also a consideration.

Tax Deductions and Credits can also be used to offset business risk and encourage social behavior.

Payroll-FICA-Social Security Tax is an income tax. It needs to be included in any income tax debate as more workers pay a higher payroll tax than income tax. It is not as progressive as the income tax because it is a flat tax with a ceiling. A great tax cut for 95% of the workers and many small businesses in the country would be a reduction in the employee based tax rate and elimination of the ceiling. This could be structured to be revenue neutral or a revenue increase to actuarially extend social security.

Lowering or raising income taxes does not necessarily create a boom or bust. There are many other factors involved. Most of these taxes are usually spent, as the government is the customer – offsetting flaw number two. The Clinton Administration raised taxes in the early 1990s and we had the biggest boom in the history of mankind. The income tax rate in the early 1930s, during the Hoover Administration, was 24% on only the wealthy and we had the worst depression in modern industrial history. Of course, no government taxing system can be too confiscatory resulting in overly restricting and reducing the incentives of the free enterprise system.

In other words, a tax rate of 99% is too high and 1% is far too low to overcome the flaws of capitalism. The Clinton years seems to depict an appropriate level of taxation. Personal and corporate tax rules, regulations and preparation should be kept as simple as possible. This does not mean reducing the number of brackets or itemized deductions but mostly the above the line regulations.

Corporate tax rates should be more progressive as they have more of the ability to pay as it is based on profits after salaries and expenses. It should be lowered for smaller and less profitable businesses and increased on more profitable corporations. Of course, the very significant corporate loophole system and offshore havens always needs to be reviewed and corrected, which will allow actual rates to be lower without losing revenue.

One has to be careful with taxes based on sales not profits; sales taxes, consumption taxes, the VAT tax and property taxes. They can over-interfere with commerce and are usually over burdensome for lower income families and businesses.

Should the tax on dividends be so substantially below the taxes on interest and wages? The answer is – no. Dividends should be taxed at the same rate as everything else with exclusion for a small amount of dividends and interest so it will stimulate and help the lower income families save for retirement. In fact, the dividends paid out by corporations should be tax deductible with offsetting increases in taxes to make it revenue neutral. This will encourage corporations to plan more for the long term, which addresses flaw number three. These increased dividend payments will help the Baby Boomer Bubble through retirement without any requirement to sell securities.

There is an argument that individuals end up paying all taxes either directly or through high prices. This is not a completely accurate statement. Although, this is somewhat true because we are all in the system, it is an unrelated argument because what counts is how much a business or individual has left over after taxes. Also, pricing mechanisms include many costs and other factors of which taxes is only one of them. Taxation comes out at various points of the production-sales-profit cycle. The question is at what point does it come out?

Monetary Policy

The Monetary System is the Creation and Distribution of new money into the economy. This power was given to Congress by Article 1, Section 8 of the Constitution.

Monetary Policy is the policy decisions that run the current monetary system, which was given to the Federal Reserve in 1913 by Congress. This system creates new money only by issuing debt – private and government. Private debt-money is only created by the commercial banks under the regulation of the Federal Reserve. Treasury debt-money is only created directly by the Federal Reserve’s open market operations at the Fed’s bank in New York. This is called, “Monetarization of the Debt.” The Federal Reserve is called a central bank. Other important central banks are The Bank of Japan, The Bank of England and the European Union’s Central Bank.

There is NO cost of creating money except for creating too much in circulation creating excess or hyperinflation. Creating too little with narrow circulation severely costs the economy in recessions, depressions and extreme human hardships.

The following example gives you a brief overview of the steps involved in creating money under our current system. The U.S. Government needs $1,000 to pay the salary of a federal employee. The U.S. Treasury issues a $1,000 Treasury Note, Bill or Bond. This note is transferred to the Federal Reserve, which records it as an asset, and in return sends a check or deposit credit to the U.S. Treasury for $1000. The check is recorded by the Fed as a liability against the government and the Note becomes an asset of the Fed.

The Fed has created the $1000 check with simple keystrokes on their computer without actually getting the money from any specific place. In other words the Fed issued this money against no funds of its own. Thus we see why many call this money creation process “money created out of nothing or thin air”. This is also called “fiat money.” It is in reality debt money or debt backed money.

The other money creation process is best explained by the Federal employee’s deposit of his $1000 salary check in the commercial bank like Bank of America, Chase, Wells Fargo, or Citibank. This starts the “fractional reserve” portion of our private monetary creation system, which is usually much larger than the government’s creation through Treasuries.

This fraction reserve system allows a bank to create new money on a fraction of deposits made with that bank. This fraction is determined by the Federal Reserve Board, as part of its monetary policy, and is called the reserve requirement. If the reserve requirement is 10% then the bank can loan another of $900 from the deposit of the $1000 salary check or 90% of the value of the $1000. Then this new $900 loan is deposited in another bank, which then can make another $810 loan. This process repeats itself until a maximum of $9000 is loaned out by the commercial banks form the initial deposit of $1000. All the new money created was created out of nothing; or to describe the process more correctly, it was created out of debt. Therefore, it can be labeled – debt backed money.

The big questions are: If all money is created through debt, where does the money come from to pay the interest charges by these banks?? Where is it written that we have to create money only through debt? Nowhere.

Monetary Policy – Problems

When you review monetary history, every country, and I mean every country, has gone through significant monetary crisis. In our nation’s last 175 years, the immature and under diversified monetary system and lack of fiscal spending (recirculation) created the panics of 1837, 1857, 1873, 1893, 1907; the Banking Crisis of 1884; the recessions of 1892-6, 1904 and 1921; the severe depression form 1873 to 1879 and the Great Depression of the 1930’s; post WW II recessions in the 50’s, 80’s and 90’s; culminating in the current Great Recession, which began in 2007. This was caused by the monetary, sub prime collapse, which we spread to other parts of the world. WHY? Why was this necessary?

Because the only way we get needed money into circulation is through the issuance of debt-loans (private & public). This archaic and very narrow banking structure does not fit the needs of a 21st Century computerized, non-scarcity economy.

This private, single system usually over lends in qualifying, booming sectors. Then it has problems when those sectors start to decline. “You can only borrow if you already have money-collateral!” Therefore, new money is not allocated enough by market forces, need or quality of the investment but according to the financial girth of the prospective borrowers. Even if they do not need it! This leads to boom-and-bust scenarios, not only in specific industries but also in entire economies. This stifles growth, competition, recirculation and employment. Elimination of the Glass-Steagall Act has allowed almost unlimited access of this monetary creation process to the commercial banking owned investment-trading companies resulting in our current financial crises.

Another major fault of this system is that new money is infused into the economy solely through the use of debt instruments using variable-short term interest rate charges. Besides the psychological effect of increasing debt, a rising interest rate environment again hurts the borrowers with less financial girth and those enterprises that use debt rather than equity as a means of financing their operations. Where does the economy get the interest money to pay the banks? Remember there is no money created to pay the interest only the principle of the loan. Obviously, significant economic conflict and bankruptcy occurs when individuals and business struggle to find this interest from one another, which does not exist. This is a disastrous win-lose scenario.

Another general reason for monetary failures is that we are human. We make errors. It does not matter how good the regulators are. These errors in long-term judgment will happen. When a single monetary creation system creates an error (i.e. sub prime loans) it puts the entire system in jeopardy and shuts off or substantially reduces money into the economy, causing extreme economic down turns. This also causes a slower than necessary recovery.