This might sound strange, but I’ve always been fascinated by tax policy.
Besides the need for general operating money, the tax code serves as a mechanism to encourage or discourage individual and corporate behavior.
So it’s no surprise that two of the democratic presidential aspirants are reaching beyond taxing wealth but now promoting new tax proposals to change behavior they deem harmful or corrupt.
Senator Bernie Sanders (I-VT) has released his “inequality tax” to punish companies where CEOs earn far more than workers. The plan would apply to all companies – public or private – with more than $100 million in annual revenue.
Furthermore this would increase a firm’s corporate tax rate if its highest-paid employee earns more than 50 times that of its average worker — an attempt to encourage companies to distribute their profits more equally.
Corporations, where the chief executive makes more than 500 times the amount of a median worker, would see a five percentage point hike in its corporate rate, ratcheting down to a 0.5 percentage point bump for corporations where the pay disparity is between 50 and 100 times.
And what is undoubtedly a coincidence, the liberal Institute for Policy Studies released on the same day a study on CEO pay gaps entitled: Executive Excess 2019. Among the findings: S&P 500 corporations could have owed as much as $17.2 billion extra in federal taxes in 2018 if they had faced a Sanders-style pay gap tax. They also note that among S&P 500 firms, nearly 80 percent paid their CEO more than 100 times their median worker pay in 2018, and nearly 10 percent had median pay below the poverty line for a family of four.
Another plan was rolled out by Senator Elizabeth Warren (D-MA) to increase taxes on companies and other groups that spend more than $500,000 a year on lobbying. Her plan is progressive and includes a 35 percent tax on lobbying spending between $500,000 and $1 million. The rate would rise to 60 percent for lobbying spending between $1 million and $5 million and 75 percent for spending above $5 million. Considering the fact that the First Amendment gives you the right to “petition the government,” it might have to pass a constitutional test similar to her wealth tax proposals.
Congress has adjourned for a two-week district work period. Lawmakers will return to Washington on Tuesday, Oct. 15.
SALT: With the fear of losing even more well off constituents, high tax states have been seeking ways to work around or invalidate the $10,000 cap of the State and Local Tax (or “SALT”) deduction, which allows some taxpayers to deduct some of the taxes they pay to state or local governments from their federal income tax return.
One such avenue was a lawsuit challenge brought by Connecticut, Maryland, New Jersey and New York.
This week U.S. District Judge J. Paul Oetken, who was nominated to the bench by former President Barack Obama, said the states had not cited any constitutional reason to keep Congress from imposing “an income tax without a limitless SALT deduction.”
The states had argued that Congress had skipped past its taxing authority with the $10,000 SALT limit and was trying to strong arm blue states into changing their tax policies. Governors Phil Murphy (D) of New Jersey and Andrew Cuomo (D) of New York are considering an appeal but their chances of overturning the policy in the courts is slim (Judge dismisses New York’s challenge to SALT cap).
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Let’s say that again… WEALTH REGISTRY…
Sanders, in releasing his super-sized version of the wealth tax first proposed by Warren, said it would come with a newly created wealth registry. Which raised the question:
A Sanders campaign aide told Morning Tax that the registry wouldn’t be public and would essentially expand upon the sort of administrative tasks already undertaken by the IRS. The wealth tax plan, as spelled out on Sanders’ campaign website, notes that the IRS already computes net worth of wealthy people to figure out estate tax liability and that a wealth tax would require that kind of work every year for living rich people.
Sanders would also allow assets that are difficult to appraise — one of the big questions about the workability of a wealth tax — to be valued “periodically instead of annually.”