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MAKING AMERICA WORK: ALFRED P. MURRAH PROFESSORSHIP INAUGURAL LECTURE* - page 12 / 20

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64

OKLAHOMA LAW REVIEW

[Vol. 60:53

As part of the solution, I believe that we should increase the earned-income tax credit, and we should increase the child care and health care subsidies for low-income working parents. Expanding these programs would increase the rewards from work for low-skilled workers, increase productivity, and reduce inequality.

B. Keep Effective Tax Rates on Earned Income Low

Second, we should lower the tax rates on earned income. Since 2003, the maximum tax rate on dividends and capital gains has been just 15%. Sadly, however, many workers — especially those earning low wages and those who are eligible for retirement — face tax rates two or three times that high. Those high tax rates discourage people from working or improving their work skills so they can earn a higher wage.

In order to have low tax rates, a tax system must have a broad tax base. Unfortunately, the current tax system has tax breaks for everything from horse farms to walnut trees. We have known since Stanley Surrey was the Assistant Secretary of the Treasury in the 1960s that the more of these so-called “tax expenditures” that we can get rid of, the lower our tax rates could be.

My favorite tax break is a little-known tax credit that was added to the Internal Revenue Code in 1999 by the late Senator William Roth of Delaware. Then chair of the Senate Finance Committee, Senator Roth was able to expand the tax code’s renewable energy tax credit to include energy produced from

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