October 16, 2009
My support of taxes in my August column generated some heat. In his on line response Andy chastised me for not sympathizing with the middle class tax burden. Although I admitted that taxes are wasted and spent on the wrong projects I didn’t name any. This column addresses both points.
For nearly thirty years we have been under the influence of Reaganomics– one that George H. W. Bush called “voodoo economics” in the heat of a Presidential campaign. At the heart of this economic policy is the “trickle down theory” - the more money the government allows rich people to keep, the more benefits will “trickle down” to the rest of us. We were duped into believing that theory through the alleged offering of middle class tax cuts.
David Cay Johnston wrote in Perfectly Legal: between 1970 and 2000 “when the federal income tax burden on Americans overall rose by 18 percent, it fell by 16 percent for the top 400 taxpayers” and they paid a rate comparable to a single person making $123,000 or married couple with two children making $226,000. Their average income was nearly $174 million. (1) The top 13,400 taxpayers had an average income of nearly $14 million in 2000, more than six times the average of this group in1970.
In addition to having a phenomenal increase in income the rich and super rich also decreased their tax liability. The reason is the tax rate maximum of 15% on capital gains and dividends. My middle class friends argue that the cap of 15% is good because it stimulates investment. For my friends, however, who make a few thousand in dividends and capital gains, the tax benefit is merely a few hundred dollars. For the super rich however, it is a substantial boon because two thirds of their income is from capital gains and dividends. So instead of paying the maximum rate of 35% on their income, their taxes are capped at 15%, a savings of 20% on millions of dollars.
benefit for the rich taxpayers are tax subsidies for
their business. George W. Bush was hailed as an astute businessman for his
handling of the Texas Rangers. He and a few partners bought the Rangers and
made some changes. When Bush sold his share of the Rangers, he pocketed a cool $16
million on which he paid the lower capital gains tax rate rather than the regular
tax rate, according to
form of tax subsidy is property tax abatements. We have, of course, witnessed
Cabela’s has made a practice of soliciting abatements and
subsidies based on projections that have been discarded by reputable economic
studies. Cabela’s received tax subsidies totaling $40
million, according to
right to eminent domain was an important factor in
Blankenship refused to sell and took her case
all the way to the US Supreme Court. Chief Justice Roberts ruled that the case
had no merit and wouldn’t even hear it according to
President Bush promoted the tax cuts of 2001 and 2003 as benefits for the middle class. The middle class did receive reductions but they are paltry compared to the hundreds of thousands and millions of dollars the wealthy received.
The Alternative Minimum Tax (AMT)
was originally established in 1969 to ensure the wealthy did not get away with
paying too few taxes. When Congress decided to add inflation factors for
exemptions and tax brackets, it purposely left this tax unaffected so the
government could get the revenue generated by the AMT. According to
(1) Johnston, David Cay. Perfectly
Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super-Rich --
and Cheat Everyone Else,
(2) Kaza, Greg and Dr. Gary L. Wolfram Property Tax Abatements
/ Posted: June 1, 1989
(3) Johnston, David Cay. Free
Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense
(and Stick You with the Bill),