At a time of massive wealth and income inequality, we need a progressive tax system in this country that is based on the ability to pay. It is unacceptable that major corporations have paid nothing in federal income taxes, and that corporate CEOs in this country often enjoy an effective tax rate that is lower than their secretaries.
Today, we lose over $100 billion a year in revenue because large corporations stash their cash in offshore tax havens around the world. That is unacceptable.
If we are serious about reforming the tax code and rebuilding the middle class, we have got to demand that the wealthiest Americans and largest corporations pay their fair share in taxes.
Sen. Sanders’ tax reform plan accomplishes that goal by closing loopholes that benefit the wealthy and well connected, making the tax code more progressive, and establishing a tax on Wall Street speculators whose greed, recklessness and illegal behavior nearly destroyed the economy seven years ago.
1. Reforming the Corporate Tax Code
In 2010, the effective tax rate of large, profitable corporations in the U.S. was only 12.6 percent, not the 35 percent nominal tax Republicans and corporate tax lobbyists complain about.
In 1953, the corporate income tax accounted for 32 percent of all federal revenue. Today, despite record-breaking profits, corporate income taxes only bring in 11 percent of total federal revenue.
Even worse, several large corporations in recent years have exploited so many loopholes in the tax code that they have paid nothing in federal income taxes and have actually received tax rebates from the IRS.
Overall, General Electric, Boeing and Verizon paid no federal income taxes during the combined 2008 through 2013 tax years. During that period, those three corporate giants racked up combined profits totaling more than $102 billion. In fact, they received income tax rebates from the Internal Revenue Service totaling more than $4.1 billion, according to a report from Citizens for Tax Justice.
One of the major reasons for this tax avoidance is that corporations have been setting up thousands of shell corporations in the Cayman Islands and other offshore tax havens to avoid paying taxes in the U.S.
A recent report by the Congressional Research Service shows that each and every year, large corporations are avoiding $100 billion in U.S. taxes by stashing their profits in offshore tax havens.
This situation has become so absurd that one five-story office building in the Cayman Islands is the “home” to more than 18,000 corporations.
Click here to read an op-ed from Sen. Sanders on corporate tax dodging.
In order to crack down on corporate tax avoiders, Sen. Sanders would:
- End the rule allowing American corporations to defer paying federal income taxes on profits of offshore subsidiaries.Under current law, U.S. corporations are allowed to defer or delay U.S. income taxes on overseas profits until this money is brought back into the United States. U.S. corporations are also provided foreign tax credits to offset the amount of taxes paid to other countries.
This offshore tax scheme has provided two perverse incentives for American corporations.
First, it motivates large companies to shift as much of their profits as possible overseas by setting up subsidiaries in the Cayman Islands and other tax haven countries.
Second, it allows corporations to receive huge tax breaks for establishing manufacturing facilities in countries with very low or no corporate tax rates.
Senator Sanders would end these loopholes by requiring U.S. companies to pay taxes on all of their income by ending the deferral of foreign source income.
Under Sanders’ plan, corporations would pay U.S. taxes on their offshore profits as they are earned. This plan takes away the tax incentives for corporations to move jobs offshore or to shift profits offshore because the U.S. would tax their profits no matter where they are generated.
Senator Sanders would use the revenue gained by closing these loopholes to put at least 13 million Americans to work rebuilding our crumbling roads, bridges, railways, airports, public transit systems, ports, dams, wastewater plants, and other infrastructure needs.
- Prevent corporations from avoiding U.S. taxes by claiming to be a foreign company through the establishment of a post office box in a tax haven country.Senator Sanders would prevent corporations that are American for all practical purposes from avoiding U.S. taxes by claiming to be a foreign company through the establishment of a post office box in a tax haven country.
Specifically, a corporation could not claim to be from another country if their management and control operations are primarily located in the U.S.
- Eliminate tax breaks for big oil, gas, and coal companies.
Senator Sanders would fight to repeal dozens of loopholes and tax subsidies throughout the federal tax code that benefit oil, natural gas, and coal special interests, saving $135 billion over the next decade. This revenue would be used to help create a clean-energy workforce of 10 million good-paying jobs by creating a 100% clean energy system.
- Prevent American companies from avoiding U.S. taxes by corporate inversions.Another way American companies avoid U.S. taxes is through corporate inversions. Under this practice, an American company acquires or merges with a much smaller foreign business and then claims that the newly merged company is a foreign one for tax purposes — even though the majority of the ownership is unchanged and little or no personnel or operations have actually moved offshore. Senator Sanders would end this tax scam by treating corporations as American corporations for tax purposes when it is still majority owned by U.S. interests.
- Close loopholes that allow U.S. corporations to artificially inflate or accelerate foreign tax credits.When U.S. corporations earn profits overseas, taxes paid to the foreign country are credited against U.S. tax liabilities. Under current rules and tax planning strategies, corporations are allowed to claim foreign tax credits for taxes paid on foreign income that is not subject to current U.S. tax. As a result, companies are able to use such credits to pay lower taxes on their U.S. taxable income than they would if it was all from U.S. sources – providing them with a competitive advantage over companies that invest in the United States.
Senator Sanders would reform current law to limit foreign tax credits to offset income only from the country in which it is earned.
2. Reforming the Estate Tax
The founders of our country declared their independence from what they viewed as a tyrannical aristocracy in England. More than two centuries later, today’s tyrannical aristocracy is no longer a foreign power. It’s an American billionaire class that has unprecedented economic and political influence over all of our lives.
Unless we reduce skyrocketing wealth and income inequality, the United States will be well on its way toward becoming an oligarchic form of society where almost all power rests with the billionaire class.
More than a century ago, President Theodore Roosevelt recognized the danger of massive wealth and income inequality and what it meant to the economic and political well-being of the country. In addition to busting up the big trusts of his time, he fought for the creation of a progressive estate tax to reduce the enormous concentration of wealth that existed during the Gilded Age.
“The absence of effective state, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power,” the Republican president said. “The really big fortune, the swollen fortune, by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is passed by men of relatively small means. Therefore, I believe in … a graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate.”
Roosevelt spoke those words on Aug. 31, 1910. They are even more relevant today.
A progressive estate tax on multi-millionaires and billionaires is the fairest way to reduce wealth inequality and to help invest in a Medicare-for-all plan to guarantee health care as a right, not a privilege.
The estate tax now applies only to the wealthiest 0.2 percent of Americans, but Republicans have proposed to repeal it altogether. The Republican proposal would cost $269 billion over the coming decade and would help just 5,400 families next year. Nearly three-fourths of the benefits would go to those families inheriting estates worth more than $20 million.
Instead of repealing the estate tax, we must strengthen it by making the wealthiest Americans pay their fair share.
Sen. Sanders will fight for a progressive estate tax that will:
- Exempt the first $3.5 million of an individual’s estate from the estate tax.
This plan would only impact the wealthiest 0.3 percent of Americans who inherit more than $3.5 million. 99.7 percent of Americans would not see their taxes go up by one penny under this plan.
- Establish a new progressive estate tax rate structure as follows:
- 45 percent on the value of an estate between $3.5 million and $10 million.
- 50 percent for the value of an estate between $10 million and $50 million.
- 55 percent for the value of an estate in excess of $50 million.
- Include an additional billionaire’s surtax of 10 percent.According to Forbes Magazine, there are only about 530 billionaires in the United States out of a population of 320 million, making them the wealthiest 0.0002 percent of America. These are the only Americans who would pay the billionaires’ surtax under this plan.
- End tax breaks for dynasty trusts.
Billionaires like Sheldon Adelson and the Walton family, who own the majority of Walmart, have for decades manipulated the rules for trusts to pass fortunes from one generation to the next without paying estate or gift taxes.
Specifically, Senator Sanders plan would:
- Strengthen the “generation-skipping tax,” which is designed to prevent avoidance of estate and gift taxes, by applying it with no exclusion to any trust set up to last more than 50 years.
- Prevent abuses of grantor retained annuity trusts (GRATs) by barring donors from taking assets back from these trusts just a couple of years after establishing them to avoid gift taxes (while earnings on the assets are left to heirs tax-free).The lawyer who invented this technique for the Walton’s claims it has cost the Treasury $100 billion since 2000.
- Prevent wealthy families from avoiding gifts taxes by paying income taxes on earnings generated by assets in “grantor trusts.”
- Sharply limit the annual exclusion from the gift tax (which was meant to shield the normal giving done around holidays and birthdays from tax and record-keeping requirements) for gifts made to trusts.
- Close other loopholes in the estate and gift tax, including valuation discounts.
- Protect farm land and conservation easements.
- Senator Sanders’ plan would protect family farmers by allowing them to lower the value of their farmland by up to $3 million for estate tax purposes.
This plan would also increase the maximum exclusion for conservation easements to $2 million.
3. Tax Wall Street Speculators
One of the major reasons why the middle class is collapsing and the gap between the rich and everyone else is growing wider and wider is because of the greed, recklessness, and illegal behavior on Wall Street.
Millions of Americans lost their homes, life savings, and ability to pay for college because Wall Street gamblers crashed the economy in 2008.
During the financial crisis, the taxpayers of this country provided Wall Street with the largest bailout in the history of this world — $700 billion from the Treasury Department and $16 trillion in total financial assistance from the Federal Reserve.
While Wall Street has fully recovered from the recession and, in many cases has never had it so good, the typical middle class family is earning less income today than it did 26 years ago and students are drowning in debt. It is time for Wall Street to pay society back for the tremendous damage it did to the middle class of this country.
Senator Sanders will fight for the creation of a tax on Wall Street to significantly reduce speculation and high frequency trading which nearly destroyed the economy seven years ago.
Importantly, this initiative would also raise the revenue necessary to make public colleges and universities tuition free, create jobs, rebuild our crumbling infrastructure, protect our environment, and make other investments in our future.
This proposal would not tax investors, retirees, or parents saving to send their kids to college. Instead, it would impose a tax on Wall Street investment houses, hedge funds, and other speculators. If those Wall Street investment houses chose to pass the tax along to investors, this plan would provide a tax credit to individuals making under $50,000 and couples making under $75,000 to ensure that they would not be impacted.
Under this proposal, trades would be taxed at a rate of 0.5 percent for stocks, 0.1 percent for bonds, and 0.005 percent for derivatives. This means, for example, that a trade of $1,000 in stocks would be subject to a tax of $5. A trade of $1,000 in swaps or other derivatives would be subject to a tax of five cents.
Even at such low rates, this plan would provide a huge benefit by reducing one particular type of trading that does not benefit our economy: high-frequency trading that rewards technological schemes rather than investing in productive businesses.
For example, some traders have focused their energy on obtaining information about trades a fraction of a second before others, sometimes by locating their computers physically closer to where trades are happening. These computers then rush to buy or sell before others can respond, turning what would otherwise be a ripple in the market into a tidal wave that destabilizes the financial system.
There is considerable precedence for this. The U.S had a Wall Street speculation fee from 1914 to 1966. And, today some 40 countries throughout the world have imposed a financial transactions tax including Britain, Germany, France, Switzerland, China, India, South Korea, Hong Kong, Singapore, Taiwan, and Brazil.
More than 1,000 economists have endorsed a tax on financial speculation and 11 European countries have committed to enacting a financial transaction tax. This idea is also supported by more than 170 organizations in the U.S., including the AFL-CIO, National Nurses United, the National Organization for Women, NETWORK, Oxfam America, Public Citizen, the Sierra Club and many others.
4. Lift the cap on taxable income that goes into the Social Security Trust Fund
Right now, someone who earns $118,500 a year pays the same amount of money in Social Security taxes as a billionaire. This makes no sense.
Sen. Sanders will fight to apply the Social Security payroll tax on all income above $250,000 to expand Social Security benefits and to ensure that Social Security remains solvent for the next 58 years. This plan would only impact the wealthiest 1.5 percent of wage earners; 98.5 percent of wage earners in the United States would not see their taxes go up by one dime under this plan.
5. Reforming the Personal Income Tax
Despite its complexity, our tax code fails in its basic task of raising enough revenue to finance adequate public investments. It also fails to raise revenue in a very progressive way. Citizens for Tax Justice estimates that in 2015, the richest one percent of Americans received more than 22 percent of the income in the U.S. and paid less than 24 percent of total taxes in the U.S. In other words, when all the federal, state and local taxes that Americans pay under current law are taken into account, our tax system is not progressive.
Senator Sanders’ personal income tax reform plan would make the wealthiest 2.1 percent of households in America pay their fair share by making three types of reforms. These changes would not affect any married couples with income below $250,000 or singles with incomes below $200,000.
- End Tax Breaks for Capital Gains and Dividends for the Wealthy.This plan would repeal the special, low income tax rates on capital gains and stock dividends for married couples with incomes greater than $250,000.
Capital gains and corporate stock dividends are taxed at lower rates than the wages and salaries most of us live on. This is why some billionaire investors like Warren Buffett are able to pay effective tax rates that are lower than what their secretaries pay. The Congressional Budget Office estimates that 68 percent of this tax break went to the richest 1 percent of Americans in 2013.
This plan would also repeal the break that excludes capital gains on bequests and gifts from taxable income. This exclusion in effect subsidizes wealthy families who hold onto assets in order to pass them onto the next generation, increasing the sort of dynastic wealth that is a feature of economic inequality. Large exemptions for homes and other assets would ensure low- and middle-income households are unaffected by this change.
This plan would also prevent the sort of complex schemes involving derivatives that have been used by some prominent billionaires to avoid taxes on capital gains. Another proposal of Senator Sanders would restrict a different technique, the so-called “like-kind exchanges,” in which two people claim that they are trading similar property rather than conducting a sale that would subject capital gains to income tax.
- Higher Income Tax Rates for the Richest Americans.The overall impact of this personal income tax plan would be to make sure that the wealthiest 2.1 percent of households in America pay their fair share.
This plan would replace the top three income tax rates (33%, 35%, and 39.6%) with more progressive rates:
- 37% on income between $250,000 and $500,000.
- 43% on income between $500,000 and $2 million.
- 48% on income between $2 million and $10 million. (In 2013, only 113,000 households, just 0.08 percent of all taxpayers, had income between $2 million and $10 million.)
- 52% on income of $10 million and above. (In 2013, only 13,000 households, just 0.01 percent of taxpayers, had income exceeding $10 million.)
- Limit tax deductions for the rich.Our tax code has several complex provisions to limit the benefits of tax breaks for the wealthy, including the Alternative Minimum Tax, the personal exemption phase-out (PEP) and the limit on itemized deductions. This plan would replace these provisions with a simpler one limiting the tax savings for each dollar of deductions to just 28 cents for high-income households.
This provision would not require complicated forms or software to calculate it. High-income people who are affected by it would simply turn to a new table provided in the form 1040 instructions and look up their adjusted gross income (AGI, a figure everyone already reports on their tax form) to learn what additional tax they owe.
High-income households would save no more than 28 cents for each dollar of deductions because the highest rate on “taxable income” (the income one is left with after subtracting all deductions) would be 28 percent.
These new tax rates would be created by an additional tax on AGI (the income one reports on a tax return before subtracting most deductions) applying only to households with incomes above $250,000.