TAX REFORM

Teachers have a stake in a fair and equitable tax system which goes beyond their concerns as tax-paying citizens because the overwhelming majority of teachers are public employees. Tax revenues fund public education and tax dollars pay teacher salaries. Teachers know too well that if revenues for education are raised through an unfair, regressive tax structure which is not based on taxpayer ability to pay, it is extremely difficult to convince the public to support the tax increases necessary to achieve progress toward the goal of universal opportunity for a quality education.

Many state and local governments are already taxing their citizens to the limit and often through regressive and unpopular systems of taxation such as property and sales taxes. Every effort must be made to eliminate existing inequities and tax loopholes and further broaden the tax bases in a progressive fashion at the state and local levels.

At the present time, however, it is the federal government alone which has the resources to make significant progress toward the achievement of such national goals as full employment, decent housing for all, elimination of poverty, and universal opportunity for quality education. The federal government also has the potential of having the fairest, most equitable tax structure in this country--one with which all citizens could be confident that everyone is paying a fair share and thus one which all citizens would support as a basic revenue source to fund the expansion of social programs necessary to improve the lives of all. A loophole-closing program of tax reforms allowing the federal tax system to live up to this potential would have the added virtue of raising some $20 to $30 billion which would provide sufficient revenues to permit permanent tax reductions. These reductions would in fact lower the share of the tax bur­den and increase the real purchasing power of low- and middle-income Americans.

The American Federation of Teachers strongly believes the time is now for the Congress to pass and the President to sign into law a program of tax justice:

• To put an end to the loopholes and special privileges which rig the tax structure against wage earners and consumers;

• To help restore the balance needed to permit the nation to recover from the present economic crisis in a sustainable fashion;

• To help rebuild public confidence in the government and the economy;

• To enable the federal government to raise equitably the revenue necessary to meet the need of essential public investments and to maintain government operations.

The Congress has taken some encouraging first steps. The $25 billion tax cut necessary to provide a sorely needed stimulus to the economy meets the AFT's and AFL-ClO's goal of concentrating benefits for low- and middle-income families, including those working poor who do not earn enough to pay income taxes. Rejected were President Ford's proposals to direct a smaller total tax cut to those in high income brackets who needed it least and a permanent reduction in the corporate income tax rate from 48 percent to 42 percent, retroactive to January 1, 1975. The proposed cut in the corporate tax rate alone would have resulted in an immediate annual revenue loss of $6 billion¾an amount almost equal to last year's total federal expenditure for education.

The tax cut bill also embodied a significant tax reform¾namely, the closing of the oil depletion allowance loophole for major oil producers which has been costing the federal government more than $2 billion in needed tax revenues each year.

These first steps can only be viewed as a beginning. Congress must follow through with a thorough and complete overhaul of the entire corporate income tax structure.

Elimination of the tax subsidies for the overseas operations of U.S. based multinational corporations generally, and of U.S. based international oil companies specifically, requires top priority. These preferences have eroded the tax structure, destroyed American jobs and helped make America vulnerable to economic and political blackmail.

Moreover, through devices such as phantom write-offs for depreciation and depletion allowances for minerals (which are also still in effect for the so-called "independent" producers of oil and gas), inventory accounting gimmickry and the many opportunities available to multinational companies to shift profits between countries, branches and affiliates, the measuring of corporate profits for tax purposes has been badly undermined.

As a result, corporations are bearing less and less of the nation's tax burden. In 1973, for example, 10 corporations with profits totaling almost $1 billion paid no federal income taxes at all, and the nation's largest oil companies paid U.S. income taxes at effective rates of about 6 percent of their profits. In the 1960s, corporations bore about one-third of the nation's income tax load. In recent years, the corporate share has slipped to about 25 percent.

If corporations presently were bearing the same share of the income tax load as in the 1960s, federal revenues (fiscal 1975) would be $20 billion higher.

The corporate income tax should be fully reinstated as a source of federal revenue to help finance America's needs.

The AFT calls for:

• An end to the foreign tax credit provision. The foreign income tax payments by U.S. corporations and the royalty payments of international energy companies should be treated just like taxes and royalties paid on domestic operations¾as deductible costs of doing business. The present practice of allowing dollar-for-dollar credits against companies' U.S. income tax liability must be ended.

• An end to the deferral privilege which allows multinational corporations to defer U.S. income tax payments on the earnings of their foreign subsidiaries until such profits are brought home--which may be never.

• The elimination of "intangible" drilling cost write-offs for foreign produced oil.

Elimination of the Domestic International Sales Corporation (DISC) gimmick which permits corporations to spin off into export subsidies in order to defer taxes--perhaps indefinitely--on export profits.

Ending these foreign tax subsidiaries would raise some $3 to $4 billion in annual revenue.

Further, the AFT calls for:

• Ending the special tax privileges for corporations in the oil, gas and other mineral industries such as depletion allowances. The unjustified oil depletion allowance which still exists for "independent" producers costs the federal government between $700 million and $900 million a year. Altogether, these subsidies cost more than $1.5 billion in annual revenue aside from their contribution to America's energy problems.

• Immediate elimination of the depreciation speedup enacted in 1971¾a loophole which currently costs the Treasury and the American taxpayer about $1.5 billion annually. And the $5 billion a year investment credit should be eliminated as soon as the present emergency situation is over.

• Enactment of an excess profits tax would prevent many corporations from profiting unconscionably through crises such as the energy emergency while others endure hardship. An excess profits tax similar to the one in effect during the Korean War would raise some $3 to $4 billion in annual revenues.

In addition, the American Federation of Teachers urges prompt enactment of the many tax reforms needed to assure that wealthy individuals bear their fair share of the tax burden. In 1972, according to the latest available information, no federal income taxes whatsoever were paid on 402 tax returns from individuals with incomes of over $100,000.

The American Federation of Teachers calls for:

• Closing the capital gains loopholes. The preferential half-tax which applies to gains on unearned income from stocks or other property sold at a profit and the zero tax that applies to such gains when passed on at death are among the most disruptive elements in the tax structure. Closing these loopholes could raise as much as $8 to $10 billion in annual revenue.

• Disallowing the tax exemption for interest income from state and local bonds. This provision benefits only banks and the very wealthy. Such income should be taxed in full with the federal government providing an interest-subsidy to assure that fiscal powers of the state and local governments are not hampered.

• Eliminating the maximum-tax provision, an uncalled-for tax bonanza to corporate executives and others whose income comes from very high fees and salaries. The yearly revenue gain would be over $200 million.

• Ending the many opportunities for the wealthy to shelter and wash out otherwise taxable income through investment in mineral exploration and oil drilling ventures, real estate, hobby farms and the like. Revenue losses from these tax avoidance op­portunities total over $1 billion annually.

• Overhauling federal estate and gift taxes. Present law provides unnecessary exemptions and a host of opportunities to minimize or postpone tax payments for generations, through devices such as family foundations and generation-skipping trusts. An effective and equitable estate and gift tax structure could generate about $3 billion in additional annual revenue.