As lawmakers in Washington take on the subject of taxes, here are some of my ideas. This is not presented as a comprehensive tax package, but rather as points to be considered in the process. As a CPA, I would love to be at the table for those discussions as the District 24
representative.

1. Income is income. There should be no distinction for tax purposes between ordinary and capital gains income.

Ordinary income is the money you make in your paycheck, or as the profit from your business. It is taxed at one rate, which goes up as your amount of income grows. Currently, those rates range from 10% to 39.6%. In addition, there are Social Security and Medicare
taxes withheld from that money.

Capital gains income is money from dividends and from the sale of assets like stocks. For the most part, wealthy people have capital gains income, while the rest of us do not. Even if you own stocks or mutual funds in your retirement accounts, distribtutions from those accounts currently are taxed as ordinary income, so you still don’t get the benefit of capital gains rates.

I’ve heard capital gains income referred to as “mailbox money.” There is no work involved in producing it…just a walk out to the mailbox to collect the check. And it is taxed at a much lower rate than ordinary income, currently 15 to 20%. Also, there is no tax collected on this money for Social Security or Medicare.

For some reason, when “tax reform” is discussed by Republican lawmakers, the first suggestion on the subject of personal income tax is to lower the capital gains rate. Give me a break. That is squarely targeted to benefit the lawmakers themselves and their wealthy donors, not the middle class. And it accounts for how Warren Buffett’s secretary pays taxes at a higher rate than Mr. Buffett pays himself.

My suggestion is to eliminate the distinction, and just let income be income. That would truly simplify our tax system, and would eliminate one provision that provides benefit almost exclusively to the wealthy. And if the money that’s currently called capital gains income were also subject to tax for Social Security and Medicare, that would produce a huge inflow of money into those systems, ensuring their sustainability.

2. Another frequent suggestion in discussions of “tax reform” is the elimination of the estate tax. Or “death tax,” as Republicans like to call it. But in the fine print, you’ll learn that the only money subject to the estate tax is the amount of the estate that exceeds 5.5 million dollars. I don’t know about you, but I don’t know many people who have estates that large. So again, this “benefit” is only for the wealthy.

3. The discussion seems to always start with corporate taxes. This is part of the famous “trickle down” theory. As it’s explained, when corporations pay less in tax, that will generate more jobs, thus benefiting those who are newly hired. My experience indicates that corporate boards do not say, “We just got a tax cut! Let’s hire more people!” Rather, the decision to increase staffing is made when the current staff is unable to handle the level of business
activity.

Therefore, I believe we should start by increasing the minimum wage. That, combined with affordable healthcare, affordable education, and smart workplace policies around family leave, paid sick leave, and gender pay equity, will produce a much larger population of people eager and able to participate in the economy. This is “bubble up” economics.

When wealthy people have additional income, it is largely stashed away and used to build an ever-increasing wealth. When middle class people get additional income, that money is much more likely to be spent. And the exchange of money for goods and services is the definition of an economy, so we would by definition be promoting economic growth by concentrating the benefits at the middle to lower end of the spectrum. And that would “bubble up” to also benefit the owners of those businesses who would see increased activity in their operations.

By contrast, providing the impetus at the top of the spectrum is what’s been tried repeatedly. Always Republican lawmakers say that those incentives will grow the economy. But even though they’ve said it for decades, that hasn’t made it true. It has, in fact, just increased the ever-widening gap between the have’s and have-not’s in our country.

4. There has been what’s called an “alternative minimum tax” (AMT) on individuals for about 35 years. The idea was to ensure that wealthy people would always pay some minimum amount of tax, even if all the “magic” done by their tax preparers would be able to eliminate any tax liability. Maybe one idea would be to introduce an AMT on corporations. We hear about the competition-stifling excess of the current 35% corporate rate. Yet we also hear of huge corporations that actually pay no income tax at all. Sounds like exactly the type of situation an AMT is designed to prevent. So maybe the compromise position is a lowering of the 35% rate, coupled with an AMT to ensure that everyone is paying in.

In a group discussion recently, one woman expressed it well. She said that Republicans and Democrats seem to have different perceptions of taxes altogether. Republicans think of taxes as penalties. But Democrats look at taxes as part of the normal course of participating and contributing in the larger society that we’re all a part of. I like that framing!

  1. Heather says:

    Middleclass incomes in the US were between about $39,000 and $118,000 in 2016, but the ranges shift at the state and city levels.

  2. John Dannelley says:

    I wish you would push for separating the Social Security and Medicare items from the National Budget and make them a separated budget to be voted on separately like they were before Lyndon Johnson combined the two to hide the real cost of the Viet Nam War. If we look at the current budget in front of Congress, we could see that the powers to be are looking to rob the Social Security and Medicare funds to cover the tax cuts they passed this year. This was tried during the early Year’s of Reagan’s administration but House Speaker Tip O’Neal caught them draining the Social Security funds and the Democrat controlled Senate forced them to at least issue bonds to insure the funds would be returned.

  3. David G. Symes says:

    Your positions on issues all make perfect sense to me, but you have my vote because you are not the incumbent! I was a life-long republican until GWB took us unto an unnessary and costly war still costing American lives. What I am looking for is a democrat who will put an end to Will Rodgers plaintive declaration: “I am a member of NO ORGANIZED POLITICAL PARTY – I’M a democrat..” Are you willing to be a part of that solution?

    • Jan McDowell says:

      Thanks for your support, David! I think CPA goes hand-in-hand with being organized! I believe in policies that work to benefit as many people as possible, rather than just aiming to improve the bottom line of the wealthy. I hope you’ll be willing to help me unseat Rep. Marchant. You can click on the volunteer page of my website to let us know what you might be able to do to help.

  4. Kevin Woods says:

    Here are a few thoughts:
    1. One of the reasons behind a lower capital gains tax is because of the number of times that dollar has already been taxed. Wages are first taxed by payroll and personal income taxes, then again by the corporate income tax if one chooses to invest in corporate equities, and then again when those investments pay off in the form of dividends and capital gains. Taxing these gains at a lower rate will encourage investment. Taxing at a higher rate could discourage investment.
    2. You stated above “My experience indicates that corporate boards do not say, “We just got a tax cut! Let’s hire more people!” While I agree that simply cutting taxes will not cause companies to increase hiring, however, several companies have decided to pay bonuses to their employees because of the tax cuts. This will stimulate the economy by adding more money in employees pockets to spend freely.
    3. You also state you “…believe we should start by increasing the minimum wage.” This is counter intuitive to what you just stated above. If you do not think companies will hire more people because of a tax cut (saving money) why would you think they would hire more people if it cost more to do so? There should not be a minimum wage, rather wages should be set for what people are willing to do said job. By imposing a minimum wage, it automatically sets the floor and companies (which are in the business to make money) will start at that minimum to try and get someone to do the job. If there is not a minimum wage, companies are then at the will of the worker who can decide what they will do the job for, rather than what is legislated. It cannot be expected that someone working a job that is not supposed to be used as a means of support be paid $15 an hour. That will drastically increase costs because of what businesses are forced to do and will result in the cutting of hours and lay-offs. If you are not making $15 an hour at your current job, you are probably not doing a job that deserves $15 an hour.

    Just a few thoughts.

  5. I agree with your direction here for raising real incomes for real people. Things such as wage disaparity, taxing disparity and many, many other issues, such as gun control, that plague young and old, Dem and Rep alike, are totally locked down by the financial engines of donors and there lobbyests. No one but they are able move the needle significantly. Usually to remove protections to favor their own profits. I would like to see you place a huge emphasis on protecting the voice of the people over the voice of corporations, private donors and PACs. I would like to hear how you plan to push hard and fast to irradicate all public and private campaign financing and move to a protecting non-partisan taxpayer financed campaign fund to level the financial disparities we have today. This system cannot continue where he who raises the most money most often wins. Then you, as our trusted Congress woman, will spend zero time begging for funds and 100% of your time making the country the best it can be 🙂

  6. Jan, your ideas are great, but are you familiar with the internet tern “TL;DR”? It stands for “Too Long; Didn’t Read”. Young people don’t bother to read. Sad but true. So you need to simplify!

    Using the example of this web page, I suggest you lead with a large, bold headline summarizing your position. Like perhaps, “Stop giving the super wealthy tax breaks they don’t need.” Or “Give tax breaks to the masses, not the one percent.” Something along those lines. Simple and to the point. Then at the end, follow-up with a similar statement. (Something more catchy would be better of course. I’m no marketing guru.)

    I realize that even in this age of Trump, repealing and replacing Marchant (aka Porky Pig) is a long shot. But this may be the Dems best chance in quite a while. (I don’t want to wait for Marchant to redraw his district yet again so he can keep getting reelected. UGH!!!)

  7. Taylor Swain says:

    You’re talking about items that would definitely help the mid class. Let’s get things going!

  8. Ramona Thompson says:

    I like that framing, too! In fact I liked all of these well-thought-out concepts. We need more of this kind of thinking. Thanks!

    • Carly says:

      The economic recover of this country has figures that prove that the middle class is being helped. Unemployment is a record lows so the tax cuts have proven to be effective I think you all need to look at the facts from economists that aren’t trying to run for office.

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