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Resolutions & Amendments

29th International Convention - Miami, FL (1990)

Preserving Federal Tax Reform

Resolution No. 136
29th International Convention
June 25-29, 1990
Miami, FL


Passage of the federal Tax Reform Act of 1986 represented a historic improvement in the fairness of the federal tax code and a clear rejection of the Reagan Administration's 1981 tax program. In one fell swoop, dozens of unfair loopholes benefiting the wealthy and corporations were eliminated. Just as important, the Tax Reform Act represented the abandonment of the idea that the federal tax code should be used as a mechanism for manipulating the economy with tax "incentives." The Tax Reform Act eliminated ineffective and costly tax incentives aimed at stimulating personal savings, encouraging investment in plant and equipment, and helping certain industries (like real estate and banking) at the expense of others. In repealing these provisions, Congress was acknowledging that they had done nothing to revitalize the economy and had left the country instead with a lower national savings rate, cities full of empty office buildings, and rural areas devastated by overproduction from tax shelter farming; and


Corporate interests have never accepted the loss of their cherished loopholes. They have kept up a steady drumbeat of studies, editorials, and other propaganda asserting that the reestablishment of such provisions as the capital gains exclusion and the investment tax credit are essential to restoring America's "competitiveness." In a reprise of the old, discredited "Laffer curve" theory, many advocates of cutting taxes on capital gains even argue that this would lead to a net revenue gain for the federal government (despite a wealth of research to the contrary). These advocates of new "supply-side" tax cuts have met with some success in their campaign; for example, President Bush has made restoration of the capital gains exclusion a major plank of his economic policy platform; and


Most advocates of restoring business tax incentives are well aware that doing so would increase the federal budget deficit. They advance these proposals in spite of the growing consensus that the deficit must be gradually reduced and that additional revenue must be one component of a deficit-reduction program. These "loophole lobbyists" want new federal tax on consumption, like a comprehensive value-added tax or a national sales tax. The call for new consumption taxes has also found some support from those who do not want new business loopholes but believe the revenue is needed for deficit reduction or additional government spending; and


Restoring business tax incentives while imposing new taxes on consumption would radically shift the tax burden from the wealthy to the middle class and the poor. For example, the capital gains loophole provided 85 percent of tax savings to taxpayers making over $100,000 per year. In contrast, a value-added tax would be extremely regressive even if basic necessities like food were excluded, because the wealthy save rather than consume a substantial share of their incomes. Moreover, there is a very real danger that, over time. revenues from a value-added tax would more and more be substituted for revenues raised from the personal and corporate income taxes. Eventually, federal revenues could be raised almost entirely from regressive payroll, excise and value-added taxes. Finally, a federal value-added or sales tax would seriously interfere with the ability of state and local governments to raise revenues from their own sales taxes.


That AFSCME will fight to preserve and improve the progressiveness of the personal income tax and a fair and economically neutral corporate income tax as the cornerstones of the federal tax system; and


That AFSCME will defend the principle, firmly embodied in the Tax Reform Act of 1986, that the tax system should only be used to raise revenue to finance the legitimate responsibilities of government and not as a means of encouraging particular desired forms of private investment. In keeping with this principle, AFSCME will vigorously oppose both the restoration of tax incentives for the wealthy and corporations like the capital gains exclusion and the creation of new ones; and


That AFSCME will vigorously oppose, as a new source of federal revenues, the creation of regressive value-added and related consumption taxes that unduly burden low- and middle-income taxpayers and/or that harm the ability of state and local governments to raise revenues for public services; and


That AFSCME will support equitable means of raising additional federal revenues to finance both deficit reduction and programs to address such pressing national needs as sheltering the homeless, providing long-term care for the elderly, and treating AIDS victims. These include closing remaining loopholes in the federal tax code (like special accounting provisions for military contractors, the failure to tax capital gains at death and partial capture of foreign-owned multinational firms' income), and instituting additional, higher tax rates for very high-income taxpayers.


International Executive Board