Shell Game
Chuck Collins is program director at United for a Fair Economy and co-author, with Bill Gates Sr., of Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes (Beacon, 2003).
I remember the day last summer when I got my $400 tax cut, President Bush’s advance on an increased child credit. I was happy to get the 400 bucks, but within a week I started to wonder if it was an illusion.
First, due to state and local budget cuts, my daughter’s elementary school laid off our librarian, cut lunchroom monitors and cancelled hiring for an art teacher. Then I got a request from another parent asking each family to chip in 39 bucks for new chairs at the school, so the kids could have decent seating. Then I got my property tax bill, reflecting a 100 percent increase in local property taxes.
Like most Americans, I don’t look forward to tax day. Nor am I enthusiastic about everything our government does with my money. But I don’t resent paying for the peace, order and public services that we all enjoy. I confess that there are a lot of things government does that I take for granted because they function well and are invisible.
As we all prepare our tax forms and pony up to fund our government, it's important to understand that there's another invisible element at work here. The "tax cuts" that most working Americans have received under the Bush administration are actually not tax cuts, but tax shifts. Here are the five most fundamental:
Tax Shift #1: From Federal Taxes to State Taxes. Since 2002, state governments have closed $200 billion in budget gaps by raising taxes and cutting services. During those same years, newly enacted federal tax cuts delivered about as much money"$197.3 billion"in new tax breaks for the wealthiest 1 percent of Americans (households making more than $337,000 a year). In essence, Bush chose to force tax hikes in the states in order to give tax breaks to multi-millionaires.
Tax Shift #2: From Progressive to Regressive Taxes. President Bush has focused on reducing income tax rates. But 71 percent of us pay more in payroll taxes (Social Security and Medicare) than in income taxes. Payroll taxes are regressive: high-income people pay a lower tax rate than low-income people. The opposite is true of progressive taxes, such as federal income, corporate and estate taxes. Since the early '60s, this trio of progressive tax rates has dropped precipitously. But the regressive payroll tax rate has risen.
Tax Shift #3: From Taxes on Wealth to Taxes on Work. Politicians talk about the virtues of hard work, but their tax policies speak otherwise. Between 1980 and today, the main tax rate on work income"the payroll tax"has jumped 25 percent. In the same period, top tax rates on investment income and large inheritances have been cut between 31 and 79 percent.
This tax shift from wealth to work means that a person who derives millions of dollars in dividend income solely from his investments now pays a marginal tax rate of just 15 percent. Compare that with a schoolteacher with taxable income over $28,400 who pays a payroll tax rate of 15.3 percent, plus a marginal income tax rate of 25 percent, for a total marginal rate of more than 40 percent!
Tax Shift #4: From Corporations to Individuals. Corporate lobbyists complain that the United States overtaxes business. But since 1962, the share of federal revenues contributed by corporations has declined by two-thirds, while the share contributed by individuals and unincorporated small business has risen 17 percent.
Tax Shift #5: From Current Taxpayers to Future Generations. President Bush sold his tax cuts using the line, "It’s your money." He left out the other side ofthe story: "It’s your children’s debt." According to Citizens for Tax Justice, between 2002 and 2007, Bush’s fiscal policies will impose $13,000 in additional debt on each man, woman and child in America.
Because of this tax shift, any "cuts" that ordinary taxpayers get will be lost to state and local tax increases and services cuts. Even the "married with children" families who have been thought to be big beneficiaries are losers after the tax shifts. The real winners in three years of Bush "tax cuts" are the very wealthy, those with incomes of more than $500,000. For them, these tax cuts are real windfalls. For the rest of us, though, they end up being burdens.
So as you prepare to crank out your tax forms, take note of how much you're paying. You might get the sensation"as I do"that your dollars are being shuffled around in a grand shell game of paperwork and political rhetoric.
Visit United For A Fair Economy for more information or to get involved.
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Published: Apr 09 2004
