- Reform the Estate Tax
This is a tax that affects the estates of about 2 percent of the people who die. Congress created it to make sure a handful of wealthy families didn’t end up dominating the nation. But the tax became a threat to estates of the middle- and upper-middle classes. Bush’s top priority is eliminating it. Instead, let’s restore its initial function. Establish a big exemption–$3.5 million a person–and index it so it increases at the rate of inflation. And cut the maximum estate-tax rate from its current 48 percent to the personal max tax rate, currently 35 percent.
- Keep the 10% Bracket and ‘Marriage Penalty’
Many of Bush’s tax cuts, set to expire in stages through 2010, may be allowed to expire by Congress if he loses. Lots of them ought to expire, but here are two keepers: the new, low 10 percent bracket, and the fixes that treat married couples almost the same as two single people. It’s socially just.
- Create a Trust Fund We Can Trust
Social Security will take in about $75 billion more cash this year than it spends and its trust fund will earn about $85 billion of interest on its $1.6 trillion of Treasury bonds. That interest won’t count as a budget expense. This $160 billion makes the budget deficit look smaller, and doesn’t set aside any real wealth for baby boomers’ retirements. Let’s change the law to allow the trust fund to buy mortgage-backed securities and such–but no Treasury securities and no stocks. Require the Treasury to pay cash interest on the fund’s T-bonds, rather than paying with Treasury IOUs. This will set up a real trust fund–and add about $160 billion to the stated budget deficit. It won’t change any underlying economics, but it may help scare people into curbing the deficit before it eats us all.
- End the Tax Cut For Dividends And Capital Gains
Come on, already. Income is income. Taxing dividends and capital gains as regular income would still leave them with a significant advantage over salary–you don’t pay Social Security and Medicare tax on investments. It’s wrong on both fairness and fiscal grounds to give capital income a subsidized ride while charging salary-earners full fare.
- A War Surcharge
Civilians are supposed to sacrifice during a war. Our soldiers risk their lives, we civilians support the troops and pay for the war. But we’re paying our Iraq and Afghanistan expenses with borrowed money, much of it from foreign central banks. Instead of sacrificing, civilians are partying with tax cuts. Let’s have a 10 percent temporary war tax on people and corporations to raise $100 billion a year for the war on terror. Rates would rise to 11 to 38.5 percent from the current 10 to 35. Families with soldiers in Iraq or Afghanistan would be exempt.
- Fix the Alternative Minimum Tax
Both the Bush and Kerry camps duck when this topic comes up, with good reason. It’s a mess. The AMT is arbitrary, unfair and confusing, and has morphed from a trap to catch a handful of rich tax avoiders into a snare for the masses. We ought to kill it outright and raise tax rates to offset it. But I don’t know how that plays out. For starters, we should lower the AMT rate but subject dividends and capital gains to the AMT.
Is it arrogant for an unelected media-elite guy like me to propose policy changes? Yep. But as April 15 nears, we all become tax experts.
