Immoral Tax Breaks

 Dear Friends,

If you have not yet read Winner-Take-All Politics: How Washington Made the Rich Richer--and Turned Its Back on the Middle Class by Paul Pierson and Jacob S. Hacker, you need to do so.  It is impossible to summarize this book, and it would be inappropriate to reprint the entire book in this blog, so please read the book and then act accordingly.

Early in the book, the authors dispel the theory that the average person and our political system will take action to keep "runaway inequality" in check.  The authors summarize what has happened as follows:

Inequality in what people earn has skyrocketed.  But instead of offsetting this rise, government taxes and benefits have actually exacerbated it, an outcome witnessed in virtually no other nation.  And when we look beyond the highly visible redistribution that occurs through government taxes and benefits, the picture grows even starker.  In a range of areas, from labor law to financial market regulation, public policy has reshaped the economy to favor those at the top.  Far from"soaking the rich," elected political leaders have treated the rich more solicitously than ever, even as the rich have grown massively richer at the expense of the majority.

Here are a few statistics that the authors cite:

• In 2009 (while the rest of the economy was really hurting) Goldman Sachs paid its employees an average of nearly $600,000.
• In 2009 the top 25 hedge fund managers earned an average of $892 million each.
• From 1979 to the eve of the recent Great Recession, the top one percent received 36% of all gains in household income.
• Between 2001 and 2006, the top one percent received over 53% of all gains in household income.
• Between 1979 and 2005, the top 0.1 percent of households (roughly 300,000 people) received over 20% of all after-tax income gains while the bottom 60% (roughly 180 million people) received 13.5% of all after-tax income gains.

The United States has the greatest disparity in both income and wealth of any nation on earth.  Earlier in my lifetime, I was proud to say that the United States had a progressive tax policy.  That is certainly not the case today.  While the income tax has progressive rates, they are much less progressive than they use to be.  In addition, the rich are able to avoid the impact of these progressive rates through a plethora of deductions, credits, and special rates on capital gains and dividends to say nothing of elaborate tax shelters. 

The other taxes that we have are all very regressive.  The payroll taxes are the same percentage for all regardless of income and are even capped so that most of the income of the rich avoids payroll taxes.  In addition, since the employer has to match payroll taxes, they are a direct cost to hiring people.  Sales taxes are also very regressive.  They apply the same rate regardless of the purchasers' income of wealth, and the rich spend a much smaller percentage of their income and wealth than the rest of the people. 

As a consequence, the rich pay a smaller percentage of their income in taxes than the poor and middle class.  That is wrong.  It is not just unfair to the non-rich.  It is not good for the country.

With all of this as background, how is that that there can be any debate about the extension of the Bush tax cuts for incomes over $250,000 a year?  It seems that everybody agrees the Bush tax cuts should be extended with respect to income up to $250,000.  The Republicans and the conservative Democrats contend that we must extend the Bush tax cuts for all income because a failure to do that would limit job growth.  There is no evidence to support that claim.  In fact, giving a tax break to the top 2% of earners will do nothing to help job growth.  I should note that it is these same Republicans and conservative Democrats that are insistent on reducing the deficit.  The blatant hypocrisy of fighting for tax breaks for the very wealthy that will increase the deficit by $700 billion over 10 years while also calling for reduction in benefits to the poor and middle class to reduce the deficit should be shouted out loud constantly by President Obama and leaders of the Democrats. 

Tax cuts for the poor and middle class are very stimulative to the economy and will create jobs because the money will be spent.  Tax cuts for the rich will not stimulate job growth because the money will be saved and not spent.  They will just increase the wealth disparity in this country which is already obscene.

President Obama and the Democrats are already talking about compromising on this issue.  They must not compromise.  We must not let them compromise.  Please write President Obama (here) and contact your Representative and Senators.

Thanks for reading and please comment,
The Unabashed Liberal