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In Case There Was Any Doubt

August 13th, 2004

President Bush’s tax cuts have transferred the federal tax burden from the richest Americans to middle-class families, with one-third of them benefiting people with the top 1 percent of income, according to a government report cited in newspapers on Friday. (from Reuters: Bush Tax Cuts Heavily Favor Rich, CBO Says)

The report says that the top 1% of earners, with an annual income of about $1.2 million, will get a tax cut of $78,460, while the middle 20%, averaging a $57,000 income, will get $1,090.

The tax cuts for the top 1% represents a 6.5% cut, while the cut for the middle 20% is just 1.9%–less than a third of what the rich are getting. This is not just a disparate tax cut, it is an insult, considering the already unfair tax burden between the wealthy and the middle class.

Bush claims that rich people should get a bigger tax cut because “they pay more,” and because it is “fair.” But this claim is, of course, outside the concept of the progressive tax system, under which the idea is that the wealthy should pay more. Why? Because first, they can afford it more, and second–and most importantly–they owe more because it is the American system that allowed them to gain that wealth in the first place.

Instead, the wealthy are paying less than their fair share, even by non-progressive standards, and the gap is even wider than it appears because rising costs in fuel, slashes in federal programs and local government funding, as well as falling wages for middle-class earners–what could be called “Bush’s hidden tax hikes”–all hit the middle class hard while leaving the wealthy relatively unaffected.

And there’s even more bad news: “taxpayers whose incomes range from $51,500 to around $75,600, saw their share of federal tax payments increase” [emphasis mine]. Whereas two-thirds of Bush’s tax cuts went to the wealthiest 20%, or those making over $203,740.

On the “fairness” issue: it is markedly out of context. Wealthy people have been getting the lion’s share of tax breaks, not to mention the biggest tax breaks, for the past quarter century, while the overall tax burden for the middle class has risen. Only income and capital gains taxes have come down–the two tax areas which wealthy people pay most into. State and local taxes, as well as payroll taxes, which hit the poor and middle class most, have risen in past decades.

But wait, Bush will tell you–“the wealthiest 5% of Americans pay 38.4% of federal taxes! That’s not fair!” This is the distortion fed to the American public to make them accept the tax cuts. But is it true?

No, it isn’t: the bottom 60% of earners in the U.S. have less than 5% of the wealth, but pay more than 14% of the taxes. The wealthiest 5% have 59% of the wealth, but pay only 38.4%. Kind of looks different when seen in that perspective, doesn’t it? So don’t cry for people making six- or seven-figure incomes when someone tells you they pay “too much” in taxes. The fact is, they pay less than their fair share, not more. Part of that is because of their massive tax cuts over the past few decades, part is due to the transference of wealth to capital gains as opposed to direct salary, part of it is due to the differing burdens of state/local & payroll vs. federal income & capital gains, and a significant remaining part is due to all of the tax loopholes, shelters, and deductions available to wealthier earners which the middle class and poor cannot take advantage of. The wealthy, claimed to be in the 35% tax bracket, pay nowhere near that in terms of actual percentage of their real income. Nobody pays 35%. Those base numbers are science fiction. After all the special breaks, many wealthy people pay less than the middle class no matter which way you parse it out.

Look, people, the United States is in financial trouble. Bush’s tax cuts are obviously not helping, as the “recovery” after three years of those tax cuts is still anemic. If you’re making over 200 grand a year and you’re not willing to pay your fair share, then you’re not what I would call a patriotic American. Patriotism is not about being gung-ho about sending other people’s kids to war–it’s about sacrifice to make the country a better place.

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  1. December 19th, 2004 at 10:57 | #1

    Nice post. We tax labor most heavily in the U.S., through Social Security & Medicare flat taxes on work (regressive, since they only tax up to a fixed income level). Then we tax income overall, so again primarily labor. Passive income is tax-preferenced with dividends taxed at a lower rate than earned income. If you just sit there and collect dividends you pay less than if you earn the same amount by working for the capitalist owners. When the capitalist owners sell some stock, that’s a tax-preferenced capital gain.

    And concentrations of wealth, typically held in real estate or large stock holdings, is mostly not taxed as long as it’s not liquidated. And now the estate tax is being phased out so that wealth could avoid taxation more or less indefinitely. This is an oligarchical system.

    – Steve

    (I used to live in Tokyo, so looking forward to checking out other posts on this site)

  2. Ted
    June 29th, 2005 at 02:22 | #2

    Of course the whole tax question is based on individual ideas of “fair”. This country wasn’t built on the idea that because you earn more you have an obligation to pay more(as a percentage not gross). As a matter of fact income tax didn’t start until 1913. Our government was running at around 2% of GDP at the time. It is running at 16% of GDP now. Putting aside the “fair” amount everyone is to pay, what percentage of GDP is the right amount for the federal govt?

  3. August 9th, 2006 at 15:12 | #3

    This is not just a disparate tax cut, it is an insult, considering the already unfair tax burden between the wealthy and the middle class.

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