Commentary

New tax ideas buzzing in Washington

Stacey Vanek Smith Apr 16, 2010
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Robert Reich Robert Reich
Commentary

New tax ideas buzzing in Washington

Stacey Vanek Smith Apr 16, 2010
Robert Reich Robert Reich
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TEXT OF INTERVIEW

Stacey Vanek-Smith: Taxes are behind us this Friday. Well, hopefully. And we’ve heard a lot in the last year about where that money is going. Here to talk taxes with us is Robert Reich, professor of public policy at Berkeley. Good morning, Robert.

Robert Reich: Good morning, Stacey.

Vanek-Smith: So Robert, many of us really had to struggle to pay our taxes this year. With huge budget deficits looming, will we be paying even more in the future?

Reich: A good chance, Stacey. Even if Washington finds further ways to slow the growth of Medicare and trim Social Security, additional taxes may be needed down the line.

Vanek-Smith: Who is going to pick up the tab for that?

Reich: Ah, the big question. Well in the first instance, people with incomes above a quarter-million dollars a year. The just-passed health care bill increases Medicare payroll taxes on these high earners, and the president wants to allow the Bush era tax cuts to expire for them.

Vanek-Smith: What happens if those revenues aren’t enough?

Reich: Well there’s a lot of buzz in Washington these days about something called a value-added tax, or VAT.

Vanek-Smith: VATs are popular in Europe, is that right?

Reich: That’s right.

Vanek-Smith: So how exactly do VATs work?

Reich: A VAT is like a sales tax, but it would be put on every stage of production. So for example: steel producers would be taxed on the steel they contribute to making a car. This means a lot of the VAT would be hidden from public view. When you bought the car, you wouldn’t know how much of the sticker price reflected all the taxes paid along the way. Now some politicians like the VAT for exactly this reason; and it can be increased without drawing too much attention to itself. But because it’s essentially a tax on consumption, it’s also quite regressive; a rich person is likely to pay a smaller VAT as a percentage of his total income as someone of more modest means.

Vanek-Smith: Hmmm. Are there any other tax ideas being batted around Washington right now?

Reich: Some want to broaden the tax base by, for example, limiting the value of top earners’ itemized deductions. And closing loopholes, like the one that allows hedge and equity fund managers to treat their income as capital gains taxed at just 15 percent. That’d be nice. But these are politically tricky; they’ve been proposed before and Congress has not wanted to bite the hand that feeds it — big political donations.

Vanek-Smith: Robert Reich was the Secretary of Labor under Clinton and is a professor of public policy at Berkeley. Robert, thank you.

Reich: Thanks, Stacey.

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