Tax Policy and Economic Justice

Tax Policy and Economic Justice

Current tax policy follows the 1954 IRS Code, which differentiates between ‘passive’ and ‘earned income’. It is further complicated by form of business entity rules, NONE of which make economic sense except to choose winners and losers. This policy is based on arcane tax rules that favor select groups. How we tax should have no bearing on the legal form of any business. What we tax also should have no difference between ‘passive’ and ‘earned income’.

Buying a loaf of bread does not change ‘cost’, based on the kind of income used for payment. Tax fairness is not based on ‘marginal rates’ for the last dollar of income, but should be about the total income, regardless of how earned.

By definition ‘earned income’ pays social security, and other charges, plus income taxes and is disadvantaged from interest, dividends, capital gains, partnership and other entity income deemed ‘passive’ by the tax code. Corporations and other legal entities enjoy ‘deductions’ not allowed to individuals, and independent contractors. Hence, economic justice requires changes not about marginal rates, but allowing everyone the same marginal rates, and deduction benefits, regardless of how the income was earned.