Columns » Ernest Dumas

Government for the rich

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This is Tax Week, when ritually for at least the past 75 years editorial writers, columnists and conservative foundations have moaned about tax rates and sent up columns of statistics on the growing tax burden on households and businesses.

It is the time when the Tax Foundation puts out its forever erroneous Tax Freedom Day calculations for the United States and each of the states, which magnify the tax burdens borne by middle-class families, especially, it always seems, in Arkansas. Commentators use them to rail against Congress and state legislatures.

But this is not about that, exactly. It is about the falling taxes of a few Americans, the richest, and the price that everyone else eventually will have to pay for it.

House leaders, clearly missing The Hammer, Majority Leader Tom DeLay, could not get a vote last week on legislation permanently extending the Bush tax cuts of 2003, which sharply lowered federal taxes on investment income. But they will be back after the recess with a vengeance. Everyone from Grover Norquist to the Club for Growth knows that it needs to be done by the end of the year because Democrats may take over at least one house of Congress after the November elections and they may have missed their chance to make the elimination of most taxes on investment income permanent.

Norquist said the remedy for President Bush’s plummeting poll numbers was for him to get back to his legislative agenda, which mainly is getting rid of federal (and state) taxes on the super-rich. Not satisfied with lowering the top marginal tax rate for high-compensation income for individuals and corporations in 2001 and 2002, President Bush in 2003 wanted to eliminate taxes altogether on capital gains — income from the sale of stocks and other assets — and also on dividends and interest so that the federal income tax would apply only to income from labor. Leisure income would no longer be taxed. People who have made or inherited vast fortunes, you see, have earned the right not to be taxed. But the Republican majority split the difference, lowering the tax rate on both to 15 percent.

They hoped to come back and get the rest at a second dip, but that now seems unlikely with skyrocketing deficits. Congress arranged for most of the tax cuts to expire between 2008 and 2010 so that the projected deficits would not look so bad. But everyone by now is so used to mind-boggling deficit numbers that the Bush administration and Republican leaders have thought that they could keep enough Republicans in line in both houses to at least make the cuts permanent if they could not eliminate the taxes altogether. Pretty clearly this summer is their last chance. Lots of Republicans don’t want another big tax vote for the rich near the election.

Bush maintains that it is a tax cut for the middle class. His Treasury Department continues to characterize it that way. In the debate two weeks ago in the House, the Republican leader of the effort to extend the cuts said the cuts primarily benefited people earning less than $100,000 a year. He said 60 percent of Americans with incomes under $100,000 had capital gains and dividend income every year. When a New York Times analysis of treasury data showed that he was terribly wrong he said the staff of the House Ways and Means Committee had given him bogus information.

Internal Revenue Service data show that 90 percent of Americans earn less than $100,000 a year and that of those only one in seven received the tax cut for dividend income and only one in 20 benefited even a nickel from the tax cut for capital gains income. People with smaller incomes who own stocks usually have them in retirement accounts, and the tax cut does not apply to them.

But here is the actual impact of the investment tax cuts:

• For Americans with incomes of more than $10 million, the 2003 law shaved their tax bills by an average of $500,000 each. (The average income for that group was $26 million.) When you combined that with the first Bush tax cuts in 2001 and 2002, their tax savings exceeded $1 million each in 2003. How did that compare with yours?

In Arkansas, only a few people in Northwest Arkansas and Pulaski County are in the $10 million-plus group.

• More than 70 percent of all tax savings on investment income from the tax cut went to the top 2 percent in the U.S., about 2.6 million taxpayers.

Why should you be resentful of the government’s generosity to the super rich? They say they are creating jobs for the rest of you with their new wealth.

But it doesn’t work that way. Making the tax cuts permanent would expand the deficit by another $197 billion over the next decade, imperiling economic growth and costing jobs or government services, unless the government decides to raise your taxes to compensate. And a Congressional Research Service report showed that cutting investment taxes encouraged investment outside the United States, creating jobs, yes, but not here.

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