What can we do about lack of wage growth? Posted on October 4, 2011 by Lane Kenworthy A condensed version of my current thinking is here. ShareClick to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Like this:Like Loading... Related
Right on. Hooray for Lane Kenworthy.
I would also like to see EITC (amount, not eligibility) indexed to some measure of unemployment, expanding the arsenal of automatic stabilizers to address recessions in ways that monetary policy probably can’t (or at least doesn’t, sufficiently), and discretionary fiscal policy (for political reasons) doesn’t.
Other readers should note that Lane’s argument for EITC is well fleshed out in Chapter 8 of his _Egalitarian Capitalism_.
Back in 2009 Citizens for Tax Justice put out a press release comparing taxes paid as a percentage of income for the top one percent of US income earners against the remaining 99 percent. That was for all taxes: Federal, State and Local.
They concluded: “The total federal, state and local effective tax rate for the richest one percent of Americans (30.9 percent) is only slightly higher than the average effective tax rate for the remaining 99 percent of Americans (29.4 percent)”
Click to access taxday2009.pdf
So the flat tax brigade has already won, if you look at total taxes paid at all levels of Govt.
The biggest concerns in my mind about the EITC are that:
1. Its phaseout results in the highest marginal income tax rates in the tax code, excerbated further by welfare benefits phaseouts that make it hard to see progress when trying to climb out of the working class.
2. The incentives are opaque to most who benefit from it.
3. It is one of the most complex provisions of the tax code and causes the poor to be audited at higher rates than the middle class and upper middle class.
It is possible to quite closely replicate the distributional effects of the EITC, per child tax credit, personal exemptions, head of household status, 10% tax bracket, etc. much more simply, with a simple per non-dependent taxpayer standard deduction, income tax credit against FICA and Self-Employment taxes on the first $x of income per adult (that is not phased out), identical married filing separately and single tax brackets at lower brackets, and a fairly fat refundable per child tax credit – dispensing with the much more complex rules of the existing regime, but with a better marginal rate structure, easier compliance, and clearly incentives.