Republicans seem to have something against tax increases. I get that. But it’s still not crazy to think we can win some important revenue battles during Obama 2.0. And given this country’s pressing needs – from repairing our infrastructure to rehiring teachers – it would be crazy not to try.
A big question, of course, is how to peel off the 17 House Republicans needed to win anything (assuming all Dems and President Obama are in favor). Openings will come, though, when Republicans need votes from across the aisle on something or other. The even more important challenge is to push progressive reforms into the center of the debate so they get plucked when the stars are aligned.
Here are four that are not only solidly progressive but also have bipartisan potential:
1. Close the carried Interest loophole
OK, people, if we can’t fix this one during the second Obama administration, I’m giving up on Washington once and for all and becoming a goatherder. How can we continue to allow gazillionaires to pay only a 15 percent tax rate on the profit share (“carried interest”) they get paid to manage hedge and private equity funds?
Ray Dalio of Bridgewater Associates, for example, was the highest-earning hedge fund manager in 2011, raking in $3 billion. Forbes calculates that if Dalio had paid ordinary income tax rates, he would have contributed an extra $450 million to the Treasury.
The loophole is so off-the-charts absurd even some hedge fund managers are ready to give it up. Bill Ackman, of Pershing Square Capital, has said he expects the loophole to disappear and thinks his peers won’t even mind that much.
Formerly problematic Dems have also changed their tune. Back in 2007, a fix passed the House but never made it through the Democratic-controlled Senate because of obstructionism from Senator Chuck Schumer (D-NY). Thankfully the Senator from Wall Street land has had a rethink.
2. Cap the deductibility of executive pay
The more corporations pay their CEO, the less they owe in taxes. A 1993 law aimed to fix this perverse incentive by capping executive pay deductions at $1 million. The problem is it left a huge loophole for “performance-based” pay. Oracle CEO Larry Ellison, for example hauled in $76 million in stock options and other so-called “performance-based” pay in 2011 — all of it fully deductible. And contrary to Clinton era thinking, stock options do not improve performance. This became abundantly clear after the dot-com crash and the 2008 crisis, when boards helped CEOs recoup their losses by handing out boatloads of new options.
As for bipartisan, “purple” potential, Senator John McCain (R-AZ) co-sponsored a bill in 2009 that would’ve tightened up the loophole and former Senate Finance Chairman Charles Grassley (R-IA) has made supportive comments. There are also two recent precedents. Both the bank bailout and the health care reform legislation included $500,000 caps on pay deductibility with no performance pay exemptions for financial and health insurance executives. Guess what? The world didn’t end.
3. Adopt a financial transaction tax
This is the idea of putting a very small tax on each trade of stocks, bonds, and derivatives. Tax the Wall Street casino? Fat chance, you might say. But there’s actually huge momentum on this, both at the grassroots and the policy level.
About a dozen European governments have committed to coordinate such a tax. The details still need to be hammered out, but the proposal on the table is for a tax of 0.1 percent on stock and bond trades and 0.01 percent on derivatives.
Sure, you might say, but have Europeans ever met a tax they didn’t like? How are you going to sell this in the land of the “free”?
One major selling point is that by taxing each trade, this tax would discourage the controversial high-speed trading that now dominates markets. The chief economist at the Commodity Futures Trading Commission, the nation’s top derivatives regulator, recently found that this automated speed trading is sucking significant profits from traditional investors. And a growing number of these traditional investors are coming out in support of financial transaction taxes.
Even for tea partiers, if forced to pick from a menu of options for raising massive revenue, what do you think they’d go for? One of the numerous proposals (e.g., value added taxes) that would hit the middle class? Or one targeted at the bigtime gamblers on Wall Street who benefited the most from the bailout so hated by the tea party?
4. Close offshore tax havens loopholes
The rampant use of tax havens to stiff Uncle Sam has sparked outrage across the political spectrum. In a nationwide poll, nine out of ten small business owners said it was a problem when big businesses used offshore loopholes to avoid paying their taxes. In the same poll, in which Republicans outnumbered Democrats 2-to-1, two-thirds of small business owners said big business did not pay their fair share of taxes. Even Rush Limbaugh has acknowledged that something is wrong when General Electric pays no taxes despite earning tens of billions in profits.
Closing tax haven loopholes could raise at least $100 billion a year. To move in this direction, Congress could increase reporting requirements. Under the Dodd-Frank financial reform legislation, energy corporations will now have to report on their profits, taxes and other government payments, by nation. This should be extended to cover all corporations. The intent of the Dodd-Frank disclosure is to combat corruption, but it could also help combat tax avoidance. A recent survey of chief financial officers of multinational corporations found 75 percent worry about the reputational impact of their company’s tax disclosures.
Let’s not be intimidated by Grover Norquist and his irrational tax-hating minions. Obama’s legacy — and our nation’s economic future — will be determined by our ability to build a solid and progressive revenue base.
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