1. 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).

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6. 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. 7 Figure 5. Distribution of Earnings, 2004

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13. 13 Recent Policy Trends Encouraging Work Welfare reform Cutting tax rates on earned income Outlawed employment discrimination Social Security, pension, labor markets

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16. 16 Table 2. Top 10 Income Tax Expenditures, 2011 (billions of dollars) Health insurance exclusion $177 Mortgage interest deduction 104 401(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 31 2011 Federal Budget, Analytical Perspectives, Chapter 16, Tax Expenditures, Table 16-3

17. 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. 18 Fig. 13. Percentage Composition of Federal Receipts by Source: 1940- 2005 0 10 20 30 40 50 60 1940195019601970198019902000 Year Percent Individual Income Tax Corporation Tax Social Insurance Excise Taxes Other

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21. 21 Figure 16. U.S. Payroll Tax Rates: Selected Years 0 2 4 6 8 10 12 14 16 18 20 1940196019802010 Year Percent paid jointly by employee and employer Medicare Social Security

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23. 23 Figure 18. Average Cumulative Tax Rates Confronting Low-to-Moderate-Income Families ($10k - $40k)

24. 24 Figure 19. Rates in a Comprehensive Tax and Transfer System

25. 25 Figure 20. $2,000 per Worker Earned Income Credit, with or without a Phase-out

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27. 27 Pre-transfer Earnings plus Universal Grants plus Worker Credit less Tax Imposed Equals After- tax Income 0$6,000 0 0 $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

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29. 29 Figure 23. Minimum-Wage Earnings versus Poverty Levels, 1960-2009

30. 30 Figure 24. Life Expectancies at Birth versus Social Security Retirement Age

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32. 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 2005---- 2025$3,791$8,424$13,478$20,552 2045$11,627$25,839$41,342$63,121 2065$16,549$36,775$58,840$89,994

33. 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 20050.0 202516.9 204541.7 206547.9

34. 34 Table 4. Health Coverage 2008 Source of Coveragemillionspercentage Total population301.5100.0 Employment-based coverage 176.3 60.3 Individually Purchased 26.7 9.8 Public 87.4 28.0 Medicare 43.0 15.1 Medicaid 42.6 21.1 Military health care 11.6 3.9 No health insurance 46.3 14.5

35. 35 Summary—Making 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. 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 2009-2010 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) 622-7639; Jonathan.B.Forman@irscounsel.treas.gov; www.law.ou.edu/faculty/forman.shtml Jonathan.B.Forman@irscounsel.treas.gov www.law.ou.edu/faculty/forman.shtml