1 Making America Work* Jon Forman Professor in Residence IRS Office of Chief Counsel & Alfred P. Murrah Professor of Law University of Oklahoma Treasury Executives Institute March 30, 2010 *A presentation based on Jonathan Barry Forman, Making America Work (Washington, DC: Urban Institute Press, 2006). 2 3 4 5 6 Table 1. Average Annual Earnings of Full-time Workers, 2008 Doctors (Family & GP)$161,490 Lawyers 124,750 Economists 90,830 Nurses (RN) 65,130 Police 52,810 Auto mechanics 38,967 Secretaries 29,990 Garbage collectors 37,540 Orderlies 24,620 Waiters and waitresses 19,580 7 Figure 5. Distribution of Earnings, 2004 8 9 10 11 12 13 Recent Policy Trends Encouraging Work Welfare reform Cutting tax rates on earned income Outlawed employment discrimination Social Security, pension, labor markets 14 15 16 Table 2. Top 10 Income Tax Expenditures, 2011 (billions of dollars) Health insurance exclusion $177 Mortgage interest deduction (k) plans 67 Deductible nonbusiness state and local taxes other than on houses 47 Employer plans 45 Step-up of basis at death 45 Capital gains (except timber, iron ore, coal) 44 Charitable contrib. (other than health & ed.) 44 Exclusion of imputed rental income 38 Capital gains exclusion on homes Federal Budget, Analytical Perspectives, Chapter 16, Tax Expenditures, Table 16-3 17 Some Specific Recommendations Making Taxes Work Making Welfare Work Modestly Raising the Minimum Wage and indexing It for Inflation A Two-Tiered Social Security System A Restructured Pension System Universal Health Care Move Toward Full Employment 18 Fig. 13. Percentage Composition of Federal Receipts by Source: Year Percent Individual Income Tax Corporation Tax Social Insurance Excise Taxes Other 19 20 21 Figure 16. U.S. Payroll Tax Rates: Selected Years Year Percent paid jointly by employee and employer Medicare Social Security 22 23 Figure 18. Average Cumulative Tax Rates Confronting Low-to-Moderate-Income Families ($10k - $40k) 24 Figure 19. Rates in a Comprehensive Tax and Transfer System 25 Figure 20. $2,000 per Worker Earned Income Credit, with or without a Phase-out 26 27 Pre-transfer Earnings plus Universal Grants plus Worker Credit less Tax Imposed Equals After- tax Income 0$6, $5,000$6,000$1,000 $11,000 $10,000$6,000$2,000 $16,000 $20,000$6,000$2,000 $4,000 $24,000 $30,000$6,000$2,000 $6,000 $32,000 $40,000$6,000$2,000 $8,000 $40,000 $50,000$6,000$2,000 $10,000 $48,000 $100,000$6,000$2,000 $27,500 $80,500 $150,000$6,000$2,000 $45,000$113,000 $200,000$6,000$2,000 $62,500$145,500 Table 3. How a Comprehensive Tax and Transfer System Would Affect a Single Parent with Two Children 28 29 Figure 23. Minimum-Wage Earnings versus Poverty Levels, 30 Figure 24. Life Expectancies at Birth versus Social Security Retirement Age 31 32 Fig. 26. Individual Account Benefit in the First Year of Retirement (10%-of-earnings IA, 2007 dollars) Year Cohort Turns 65 Single Male LowAverageHighTax Max $3,791$8,424$13,478$20, $11,627$25,839$41,342$63, $16,549$36,775$58,840$89,994 33 Fig. 27. Individual Account Replacement Rates (10%-of-earnings IA, as a percent of final wages) Year Cohort Turns 65 Single Male LowAverageHighTax Max 34 Table 4. Health Coverage 2008 Source of Coveragemillionspercentage Total population Employment-based coverage Individually Purchased Public Medicare Medicaid Military health care No health insurance 35 SummaryMaking America Work Government should intervene To encourage work Promote economic justice Tax, spending, and regulatory proposals Increase the size of the economic pie Allow us to divide it more equally 36 About the Author Jonathan Barry Forman (Jon) is the Professor in Residence at the Internal Revenue Service Office of Chief Counsel, Washington, DC, for the academic year; the Alfred P. Murrah Professor of Law at the University of Oklahoma College of Law; and the author of Making America Work (Washington, DC: Urban Institute Press, 2006). Jon can be reached at (202) ;