Hendrik Hertzberg, the editor of the New Yorker, made the trenchant observation a few weeks ago that what the Bush administration had set out to do, though maybe witlessly, was to turn the United States into a facsimile of the traditional South American oligarchies. They were characterized by vast gulfs between the rich and the rest of the society, massive corruption of the industrial-government complex and fiscal recklessness.
That journey kept apace last week when the president and Congress collaborated on still another tax cut for the richest Americans and corporations, which means that the war and war profiteering from here on will have to be undertaken with still greater borrowing from other nations at the expense of the next generation. At least one and possibly two more tax reconciliation bills are to follow this summer, with similar effect.
As if to reinforce Hertzberg’s hypothesis, the Federal Reserve Board issued a new report that said that the wealthiest one percent of Americans now owns more than a third of the net wealth in the United States — more than the poorest 90 percent combined — and that the inequality is expanding.
The tax bill passed by Congress and signed by Bush last week will speed that process along although Bush, his treasury secretary and Republican congressional leaders characterize it as a bonanza for nearly everybody except the very poor, and even they could possibly get some trickle-down effect.
For five years, the strategy worked. If you crow enough about tax cuts and putting money back into people’s pockets, most of them will never notice that they didn’t get much if anything from the five rounds of tax cuts and won’t believe the critics who say the benefits went almost altogether to the rich and to big business. But there are signs — Bush’s dismal poll numbers among them — that people are wising up.
Another was the furor when House Speaker Denny Hastert asserted on the House floor the other night that people who made $40,000 a year or less should not be carping about not getting a tax cut because they were not paying taxes anyway. On the other hand, Hastert said, the man making $1 million this year deserved his $40,000 tax cut because he was paying in $400,000. Both assertions were, of course, wrong. A $40,000 family does pay taxes, as thousands of them asserted on blogs, and the $1 million earner does not pay $400,000 in income taxes unless he has George Bush for an accountant.
The heart of the bill was a two-year extension of the cut in the tax rate for capital gains and dividend income. Bush had wanted to eliminate taxes on those sources of income altogether so that only wages and salaries would be taxed, but even many Republicans could not stomach that so he settled for a 15 percent rate. The lower rate will now remain in effect until Dec. 31, 2010. The bill also gave investors other tax breaks, along with big financial companies with large profits from overseas operations. The Senate had wanted to end a secret tax break for the big oil companies that crept into last year’s tax bill, but the president’s men succeeded in keeping faith with Exxon Mobil.
Oh, and there was one tax increase in the act. It tripled tax rates on college students with college savings accounts.
Bush said the tax cuts were broadly beneficial because half of American households — more than 50 million — were invested in the stock market. His number is accurate, but 40 percent of that number, mostly the poorer 40 percent, have stock only through retirement accounts like IRAs and 401(k)s. The dividends and capital gains inside these accounts are not taxable so the tax cuts do not benefit them.
Here are the relevant figures for our little state. About 10 percent of the 1,125,000 Arkansans who file federal tax returns report any taxable income from stock dividends, and most of them report negligible sums. The numbers are similar for capital gains. Sixty-five percent of all the dividend income from Arkansas in 2003 was reported by the 9,200 richest Arkansans. The same tiny group accounted for 67 percent of the capital gains.
Citizens for Tax Justice ran the numbers for the tax bill. The 71 percent of tax filers with incomes of $50,000 or less will get an average tax cut in 2009 of $3 apiece. The 13 percent of filers who earn between $50,000 and $75,000 will get $78.
The one-tenth of one percent of filers with incomes above $1 million in 2009 will get an average tax cut of nearly $60,000.
In the torrid summer of 2006, when people everywhere are feeling the pinch of rising prices and falling incomes, those were deemed to be the neediest Americans. Guatemala couldn’t have done any better.