12-08-05, 9:03 am

Once again Republican congressional leaders are attempting to push through enormous tax cuts for the rich, while leveling social benefits.

Two different Republican proposals under consideration in Congress, according to analysis by the non-partisan Tax Policy Center, will provide most direct benefits to the wealthiest members of society.

The Senate has already passed a measure that would allow high-income earners to avoid the alternative minimum tax, a provision originally designed to prevent the very rich from avoiding income taxes. About half of this GOP proposal’s beneficiaries earn between $100,000 and $200,000, 88 percent of whom are white, according to the most recent Census Bureau statistics.

While this bill seems to benefit a small section of the well-to-do disproportionately, the House Republican tax cut bill aims to protect an even more elite group by extending the historically low capital gains tax.

Half of the benefits from this proposal would go to the ultra rich: those who earn over $1 million each year, less than one percent of all households, says the Congressional Budget Office.

These tax cuts, according to all sides of the argument would eliminate another $70 billion from an already starved federal treasury with its record budget deficits. In the end, working families will shoulder the burden through cuts in public services and a higher tax burden over the long haul.

The Republican tax policy, put quite simply, is nothing other than a massive redistribution from working families to the wealthy.

According to data collected by the Tax Policy Center, shares of income for working families (roughly the bottom 80 percent of households), saw a decline in their share of the national income across the board since 1979.

Meanwhile, their share of the tax burden has increased over the same period.

The wealthiest part of the population has experienced the opposite. Their share of national income has grown, while their share of the tax burden has declined.

So don't believe it when Republicans describe their policies as fair to working families. Ever since the Reagan tax cuts, GOP tax policies have redistributed national income away from and the tax burden onto working families.

Only during the Clinton presidency did we see a slight reversal of this trend. The tax cut for middle income families in 1993 (accompanied by a slight increase in high-end income taxes) helped stimulate the economy and reduced the federal deficit.

In contrast, Reagan and Bush (I and II) tax cuts stalled economic strength and have ballooned the deficit, a financial burden the Republicans, if they get their way, will be imposed on working families down the line through huge cuts to public services: public schools, Social Security, and so on.

Republicans try to cover the fundamental unfairness of their tax policy by claiming that it stimulates the economy and that the benefits 'trickle down' to working families. This argument is based on four fallacies:

1) the rich and powerful are the most important section of the population and their interests should come first

2) working families contribute little or nothing to society and their interests do not deserve special attention

3) it is better for a very small segment of the population (the ultra rich) to have a lot of extra money then it is for the vast majority of working people (80 to 90 percent of the population) to have higher incomes

4) tax cuts for high-income households stimulate the economy and lower the deficit

In points one and two, note sheer Republican contempt for working people. On points three and four, history provides evidence to the contrary.

Tax cuts passed in 2001 and 2003 coincided with one of the longest periods of economic stagnation after the official end of a recession in US history. According to analysis of government data on labor and wages by the non-partisan Economic Policy Institute, the recovery from the recession that began in early 2001 did not start 'trickle down' to working families until well into 2005.

Stagnant wages and underlying weaknesses in the job market continue to suggest that for many working families, recovery has yet to show up.

Additionally, Economy.com has shown that the notion that tax cuts for the rich stimulate the economy hasn’t lived up to expectations. The Republicans and the Bush administration have focused on cutting estate taxes, business taxes, dividend taxes and other taxes that are aimed at very high income individuals or corporations.

In real life, however, every dollar spent on unemployment benefits, tax cuts for the lowest income brackets, or funding for the states generates an additional $1.24 to $1.74 in GDP growth. Lowering estate taxes and capital gains taxes, on the other hand, generates little or nothing in GDP growth.

This latter point suggests an alternative to the Republican plans: restore funding for public services, provide for the unemployed and underemployed (totaling around 14 million people combined), and increase funding to the states.

Additionally, restoring the pre-2001 tax rate for households that take in more $200,000 and freezing the estate tax would eliminate $81 billion from the budget deficit this year alone, according to the Emergency Campaign for America's Priorities, a non-partisan coalition of wealthy families for fair taxes.

When working-class communities have to buy cheap heating oil from Venezuela to make it through the winter, when public schools have to hold bake sales to keep programs open, when millions of working Americans have to choose between the rent or a doctor’s visit, it’s time to get our priorities right. Fair taxes is one step in the right direction.



--Joel Wendland is managing editor of Political Affairs and can be reached at jwendland@politicalaffairs.net.