By Richard Goldstein
Associate Director of Communications
Are we in the midst of a transformation from a Robin Hood tax system to one that has more in common with Ebenezer Scrooge?
Pulitzer Prize winner and former New York Times reporter David Cay Johnston made that case Aug. 26 at the Levin College of Law, presenting data showing taxes have become an ever-greater burden on the poor and middle classes, while taxes on the rich — especially the super-rich — have fallen dramatically as a proportion of their income.
"Our current tax system is well-designed for the national, industrial, wage economy of the 20th Century. We live today in an global, services, asset economy," Johnston said in an email. "Our system is incredibly efficient as it applies to taxing wages in the 20th Century. We now live in a world that's very different."
Johnston, a visiting distinguished lecturer at Syracuse College of Law and a Reuters tax and accounting columnist, explained that since 1980, the economy has shifted from domestic industrial production that generates wages for workers — production of cars, coal and steel, for example — to the production of computer software and television programs and industries such as pharmaceuticals and high-technology material science.
These new industries rely on global capital flows that often lie outside the reach of the Internal Revenue Service, and America's wealth is increasingly based on appreciating stock prices instead of wages, which the tax system was designed to capture.
In the 99th year of the American income-tax regime, tax collection no longer efficiently taps the economy's wealth-generation machine.
"If your tax system is out of whack with your economy, your society must eventually fail and this has happened all throughout history," Johnston said in the Chesterfield Smith Ceremonial Classroom, HOL 180. "One of the things we should be debating seriously in this country is whether income is no longer a valid measure of the amount of gain you make."
Johnston, author of How Our Tax System is Making Us Poorer, presented a host of statistics to the standing-room-only crowd. Johnston said that for the top 400 U.S. earners the tax burden fell 60 percent from 1961 through 2007 at the same time as their incomes exploded. Meanwhile, the bottom 90 percent pay more tax as a percentage of their income.
In addition to failing to tax the way rich people earn their money through income taxes, the regressive nature of the Social Security tax has contributed to a widening income gap. Johnston's data indicated that the bottom 90 percent of earners net, after taxes, 50 cents more for every dollar they did in 1961. Among the richest 400, the net is $36.50 for every dollar in 1961.
UF Law tax professor Martin J. McMahon Jr., Stephen C. O'Connell Professor of Law, arranged the lecture on behalf of the Graduate Tax Program. McMahon said course work designed to deal with particular types of transactions often disguise the overall mechanics of the tax system and its social and economic impact. Enrichment speakers like Johnston help students step back and see the tax system in this broader context, McMahon said.
Brian Adelstein, a tax LL.M. student, said Johnston gave him a deeper perspective on the tax system and incomes.
"What he brought to light to me was to see the disparity of income," Adelstein said. "Quite clearly, the rich have gotten far, far richer, while the poor haven't gotten poorer — they just haven't gotten any richer."