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Every year about this time, a group called the
Tax Foundation cranks up its PR machine to make sure we all hear about "tax freedom
day." That’s the day, supposedly, when the average American has worked off the
year’s taxes. Last year, the Tax Foundation calculated the big day came on May 10
— which they said was later than ever before.
The hope is that taxpayers, already riled up by having to fill out their
tax forms, will get good and angry. Then they are ripe for the arguments of people like
multimillionaire Steve Forbes, who wants to replace our system of somewhat progressive
taxation with a flat tax (which would likely mean more millions for Steve Forbes.)
The Tax Foundation’s calculations about "tax freedom day"
are convincingly rebutted by progressive economists. In reality, they demonstrate,
Americans don’t have to work till May to pay their taxes — it’s more like
March. What’s more, taxes for middle-income people have stayed pretty steady over the
years. In 1999, says the Center on Budget and Policy Priorities, a median-income family
will pay out a lower percentage of its income in taxes than they did in 1977, or most
years since then.
But that’s not to say that our tax system is fair. Rich people and
corporations pay too little, and working people pay too much. Chuck Collins of United for
a Fair Economy, for instance, points out that this year, it took the entire month of
January for the average taxpayer just to pay off his or her share of corporate welfare.
That’s the $250 billion a year in subsidies and tax cuts we are now handing out to
companies — including some of the nation’s largest and most profitable. (Others
calculate the total corporate welfare bill to be around $125 billion — still a big
bite out of the federal budget.)
Corporate taxes used to supply a hefty chunk of the federal revenue. Back
in 1930, nearly 42 percent of federal tax money came from corporations. In 1945, it was 37
percent. Today, it’s more like 13 percent. Middle-income people have absorbed a lot
of the difference.
It’s hard to believe, but the original income tax was imposed only on
the rich. When it was first enacted in 1913, only the top 5 percent of earners paid income
tax. (See the sidebar on "The history of
taxes.")
Today, the rich are off the hook. Between 1977 and 1994, the richest one
percent of Americans saw their after-tax income rise by 72 percent, according to the
Congressional Budget Office. But their tax bill hasn’t been keeping up. In fact, back
in 1997, Congress passed a budget that gave these millionaires a 32 percent tax cut.
Before Ronald Reagan, the top tax rate was a healthy 70 percent. Now it’s down to
39.6 percent. The very wealthy are taking in so much money these days, and paying out so
little in taxes, some of them are downright embarrassed. A lawyer in California’s
posh Orange County has seen his annual income double in the past four years.
"Everybody’s making so damn much money, it’s a little unseemly to argue
about taxes," he told the Wall Street Journal.
For years, Republicans have played a clever game. They steer the justified
anger of working people over their stagnated incomes toward hatred of the IRS, taxes, and
the government in general. But the solutions they propose, like a flat tax, mainly serve
corporations and the rich — the folks that caused working people’s miseries in
the first place.
Flat Tax Ripoff
This year, the Republicans have been playing with the idea of a 10 percent
across-the-board tax cut. Citizens for Tax Justice has analyzed what such a tax cut would
really mean. Those of us earning less than $38,000 a year (60 percent of all taxpayers),
would see our federal taxes cut by an average of $99. The one percent of taxpayers making
over $300,000 would get a $20,697 tax cut. Fully 62 percent of the tax cuts would go to
the best-off tenth of all taxpayers.
Top
Tax Rates for Individuals in the
G-7 Countries (1994) |
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Source: Ernst & Young Worldwide Personal Tax Guide |
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The flat tax idea is even more extreme. Under Steve Forbes’s plan for
a flat 17 percent tax rate, the government would lose around $200 billion in revenue
annually. Two-thirds of that money would go to households with incomes over $200,000.
Forbes also wants to repeal the $1 million cap on deductions for executive pay and go back
to allowing 100 percent of business meals and entertainment to be deducted.
Forbes makes that classic Reagan-era argument, that tax cuts to the
wealthy will fuel great growth in the economy (he promises 5 percent a year). The problem
is, it’s widely acknowledged that the "supply side economics" Reagan touted
was a myth. In fact, the huge tax cuts Reagan and Congress instituted in 1981 put the
country into major debt, which we’ve only now pulled out of.
Fortunately, this year, the Republicans’ tax-cutting mania has lost
steam. Says Bob McIntyre of Citizens for Tax Justice: "I think the only thing the
Republicans will be able to get away with this year is a modest tax cut targeted toward
middle-income people. The public has been persuaded that it’s better to use the money
to pay down the national debt and to help out Social Security than to cut taxes." He
adds that these days, most people "don’t perceive themselves as paying a heavy
tax rate — and in fact, they’re not."
Budget Cuts Hurt
Many people are also aware that all the government cutting over the years
has taken a big toll. Economist Robert Kuttner observes that excluding social insurance
programs like Social Security and Medicare, general government expenditures have dropped
from 12.4 percent of gross domestic product to just 6.6 percent in 1998.
State and local governments have been zapped too. California, where
antitax fury led to passage of Proposition 13 back in 1978, used to have among the
nation’s best schools. Now the state’s underfunded schools are rated as among
the worst. In New York City, people who have been thrown off government assistance now
rely on private soup kitchens and food pantries for sustenance. But the private charities
that run these free food programs are worried. The food, they report, is running out.
Private charity, they say, can never take the place of ongoing government support for the
sick, elderly, unemployed, and other needy people.
The welfare rollback, of course, was engineered not by a Republican, but
by Democrat Bill Clinton. On the issue of taxes and the role of government, the Democrats
have come to sound more and more like Republicans. Not only was Clinton responsible for
"ending welfare as we know it," he also championed the 1997 federal budget that
dramatically cut capital gains taxes, creating a windfall for the very rich. The 1997
budget also virtually gutted the corporate Alternative Minimum Tax, which had assured that
large, profitable corporations paid at least some federal income tax. Vice President
Gore’s "reinventing government" campaign, meanwhile, has taken an axe to
the federal workforce. No wonder Republicans frequently complain that all their favorite
issues have been appropriated by the Clinton administration.
In his fiscal 2000 budget, Clinton uses tax cuts as a way to provide
modest aid to some people who need it, including disabled people and families who provide
long-term care for disabled relatives. Since Republicans are virtually incapable of saying
no to a tax cut, Clinton hopes to undercut any opposition they might have to his plan. But
in reality, the tax breaks are very skimpy — especially when laid against the
monumental effects of Clinton’s welfare rollback or his embrace of "managed
care." The American Association of Retired Persons has pointed out that many people
who provide long-term care are so poor and pay so little in taxes already, they will see
little or no benefit from Clinton’s plan. Those who do benefit will doubtless
appreciate receiving a few hundred dollars worth of federal tax breaks. But it’s
hardly a solution to the problem of inadequate long-term care for America’s aged and
elderly. As one GOP budget expert told Congressional Quarterly, "All [Clinton] does
is propose little changes that nibble at the edges of big problems."
Now’s the Time
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Microsoft CEO
Bill Gates has a net worth of about $58 billion, making him richer than the poorest 40
percent of Americans combined. Under the Labor Party’s tax platform, Gates would have
to share his wealth. We call for a wealth tax on those with over $2 million in net worth;
a tax on all stock options valued over $1 million; and a 100 percent tax on that portion
of executive salaries exceeding 20 times the average worker’s pay in the corporation.
Photo ©Bill Stamets, Impact Visuals |
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If ever there was a time when the federal government could afford to
propose major solutions to our major problems, this is it. The economy is growing faster
than anyone predicted. There’s a $70 billion budget surplus. Corporations are
profitable, and Wall Street is raking it in. As of last year, Microsoft CEO Bill Gates had
as much wealth as the poorest 40 percent of Americans combined (106 million people). The
average CEO now makes 326 times the average factory worker’s pay.
The Labor Party is looking for innovative ways to fund our bold proposals.
For instance, we propose a tax on all mergers and acquisitions of over $1 billion, a tax
on stock options valued over $1 million, and a tax on all electronic transfers of funds
over $5000 to and from the U.S. To provide a just transition for the millions of workers
facing layoff because of the global economy or environmental change, we propose a
superfund for workers financed through taxes on corporations that pollute or send jobs
overseas.
There are lots of places the money can come from — and it’s not
increased taxes on working Americans with modest incomes!
– Laura McClure
See also:
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