Why the rich get the most tax goodies
Most voters in the United States are middle class or poor. Yet Congress has given a small minority of citizens, the near-rich or rich, the bulk of the benefits from several years of tax cuts, thereby further aggravating income inequity in this nation.Skip to next paragraph
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How come, with elections every two years, Congress can apparently ignore the interests of the majority? After all, the rich have been getting richer, while the remainder of Americans have seen their incomes typically stand still in real terms for five years. Government also boosts the prosperous in other ways.
By now, surely most voters are aware that tax goodies have primarily gone to those at the top of the income ladder. But most are apathetic about it.
"Another year, another tax cut, and look who's cleaning up," was a May 16 headline in USA Today, reporting on the $69 billion tax-cut bill President Bush signed into law last week.
That latest tax cut gives an estimated 80 percent of the tax savings to the top 10 percent of taxpayers. Yet the rich are already paying a smaller percentage of their income in taxes than at any time in the past 75 years. True, they give Uncle Sam a lot of money. But that's because their earnings have grown much faster than those of the typical American.
According to the Bureau of Labor Statistics, the average weekly earnings in the US last month - when calculated in 1982 dollars - was $277. That's the same as in November 2001 when today's economic recovery began. In current dollars, the average weekly earnings were $565 last month.
The reason Congress doesn't spread tax savings around more evenly is that "people understand that poor people don't create jobs, and rich people do," says Republican economist Bruce Bartlett.
Moreover, people who earn less than $30,000 a year are unlikely to pay much, if any, income taxes, notes Mr. Bartlett, a former Treasury economist. His implication is that lower-income people could not care less what Congress does on taxes.
They do, however, pay substantial Social Security payroll taxes.
Jared Bernstein, an economist with the liberal Economic Policy Institute, uses two words to describe the conservative argument that tax cuts making the rich richer will grow the economy faster and therefore pay for itself in government revenues: "snake oil."
Mr. Bernstein cites economic studies indicating that, particularly in a time of federal deficits, tax cuts for the rich have no special economic benefit for the nation. Rather, they raise interest rates higher than they might otherwise be.
"Someone is trying to sell you magic beans," Bernstein says. "Pixie dust."
He suspects one reason Americans tolerate tax cuts favoring the wealthy is that many anticipate becoming rich themselves and thereby benefiting.
Americans tell themselves that tomorrow, "I, too, will be a fat cat," Bernstein says. But that probability is "tiny."
Bartlett and Bernstein agree on one reason for Americans' apathy on tax issues: deep cynicism about Washington. They figure that "Congress does what it does and sells itself to the highest bidder," says Bartlett.
Or, as Bernstein puts it, they see Washington as being "run by incompetent people at best, crooks at worst. The Democrats give the farm away to the undeserving poor, the Republicans give the farm to the undeserving rich. And we can't do anything about it."
Another liberal economist, Dean Baker, notes that elections have become very expensive for members of Congress. "The people who put up a lot of [campaign] money are those who get their views heard," he says.
It would be "a tremendous insult" to big campaign donors to say they got nothing in return for their money, says Bernstein.
In a new e-book, "The Conservative Nanny State," available free on the Web (www.conservativenannystate.org), Mr. Baker of the Center for Economic and Policy Research holds that the well-to-do not only get tax breaks but also win other benefits from a nanny government.
Federal policies that determine who gets rich and who ends up poor, Baker says, include the Federal Reserve's monetary policy; protection from free trade for doctors, lawyers, and other professionals; and extended terms for copyrights and patents.
Tight Fed monetary policy puts mostly middle and lower-income people out of work in a battle against threatened inflation. A recession keeps wages down, helping business and the well-to-do. But Congress is usually reluctant to extend unemployment insurance benefits to the victims of the anti-inflation battle.
Disney and other holders of copyrights had their wealth protected when a "Mickey Mouse" law several years ago extended copyrights to 95 years, up from 75.
Unlike low-wage Americans facing job competition from poorly educated Latin immigrants, most professionals are protected from immigrant competition.
The Medici family motto in 16th century Florence still has at least some relevance today: "Money to get power, and power to guard the money."