Bushwhacked by the Bush Tax Cuts for the Rich

“Tax the Rich, Tax the Rich!” cry the protestors who occupy Wall Street. Overwhelming social disparity lies at the heart of their cries. Democrats want to correct that inequity by adding more taxes to the rich while conservatives protest against taxing the rich. The result is an impasse in the U.S. when it comes to solving its budget problems even as the budget committee’s deadline draws near. A sharp ideological divide has assures continued gridlock. No one is likely to give on these cherished beliefs until the country suffers catastrophic failure.

Do the rich really pay more taxes under the Bush tax cuts?

Republicans seek to extend the Bush tax cuts indefinitely by preaching their gospel that adding more taxes to the rich is an injust form of taking and of redistributing wealth. In face of rising pressures against their tax ideology, conservative Republicans like to point out that, in the United States, the top twenty percent of the populace already pay eighty percent of the taxes!

Sean Hannity recently argued against an Occupy Wall Street member by quoting a statistic that the top one percent of the population pay forty percent of all the income taxes gathered. In other words, the rich already pay more than their fair share, so keep your hands off their money! Pity the benevolent billionaires who are already forced to be generous to where it is nearly killing their hopes of a seventh mansion and a replacement for their private jet this year.

The notion that the rich are already paying more than their fair share of taxes has been an ALMOST winning argument for extending rich tax cuts, but dig deeper into the numbers to find the truth (if you are brave enough to accept the truth when it flies in the face of your ideology): When you do, you find that the top one percent of the U.S. populace holds more than fifty percent of the nation’s private wealth. In other words, they make more money than all of the bottom 99% combined! So, if they are only paying forty percent of the income taxes, they are grossly UNDERpaying.

This is WHY we actually do have a one percent and a ninety-nine percent as talked about by the Occupy Wall Street movement. We have a one percent that makes more than half of all the money made by individuals in the U.S. It also turns out that the top twenty percent make eight-five percent of the nation’s wealth. So, even the top twenty percent are clearly underpaying, as they should be paying a full eighty-five percent of the nation’s individual taxes just to be equal with the burden the middle class is shouldering. (See this study by Michael Norton and Dan Ariely.)

What sounded like a great argument from Hannity, Limbaugh and other conservatives turns out to be nothing but a half truth that really illustrates just how bad things are when you dig out the other half of the truth. While the rich have higher nominal tax brackets that help them appear to be paying progressively more, they also have vast tax breaks, exclusions, write-offs, credits — whatever you want to call them — that bring their final tax bill lower as a percentage of their income than people in the middle class. The full truth is so bad that people hearing the Hannity argument do not stop to think that maybe the top one percent are paying forty percent of the income tax because they are making more than fifty percent of all the income!

Because the full truth is almost inconceivable, the half-truth argument has been winning. That the disparity in income is THAT bad just doesn’t occur to anyone — not even the average person in the Occupy Wall Street crowd. So, when Hannity makes the statement that the top one percent pay forty percent of the income taxes, it does not occur to them that he has really just told them how much the top one percent are currently underpaying because of the Bush tax breaks.

With one percent of the populace making more than the other ninety-nine percent combined, we have a more inequitable distribution of wealth today than was seen even in the days of the infamous robber barons that preceded the Great Depression. As if that is not bad enough, today’s robber barons also get an inequitable break in their taxes because of the Bush tax cuts. Just to make the tax burden equitable, the taxes of the rich should be raised another five percentage points for those in the top twenty percent so that those who make eighty-five percent of the wealth also pay eighty-five percent of the taxes; and the taxes on the top one percent need to go up more than ten percentage points just to make their taxes EQUAL to what the middle-class taxpayer is doling out.

Half truths have always been some of the strongest lies.

The decaying results of the George Bush tax cuts for the rich

When the middle class eroded during the Bush years to widen the gap between rich and poor, far more of the middle settled to the bottom than rose like cream to the top. If we could look at a smaller middle class at the end of the tax-cut era and see that it happened mostly due to more people becoming rich, the Bush cuts could be heralded as a huge bonus to the country. What we see, however, is that few have risen, but many more have fallen.

A more evident effect of the Bush tax cuts is the U.S. debt swelling to the worst it has ever been … even before the Great Recession began. Prior to the Bush cuts, the U.S. was running a surplus budget and paying down its debt for the first time in decades as a result of the Clinton tax increases. The Clinton increases did not negatively impact the economy at all. We clearly had a lot more jobs then, so they did not discourage jobs. The economy grew even faster for nearly eight years under Clinton’s tax increases than it did under Reagan’s tax cuts for nearly the same amount of time. And it did so while paying down its debt!

While current taxes for the rich are lower than they were under Reagan, they clearly are doing nothing to create jobs in the U.S. The falling and now stagnant employment  numbers during those wealthy tax breaks speak for themselves. These are just tax-cut facts. Yet, Republicans continue to preach that tax cuts for the rich are essential to create jobs. We have had ten years of the Bush tax cuts. During that time, the economy died and unemployment soared. How can anyone think that extending the Bush tax cuts will do anything different than what we’ve seen for the last decade. The definition of insanity is to keep doing the same thing and expect different results.

The Bush tax cuts left the nation crippled in debt when it had been paying off its debt prior to George Bush II — crippled to the point that it no longer has the resources to spur economic growth with new infrastructure projects because it has no room to take on more debt. If it tries to take on more debt, its credit will be downgraded more than it already has, and the cost of its interest will go up. That’s the situation deficit spending got us into, and it is incontestable, that the U.S. deficit began anew as soon the Bush tax cuts began.

The Bush tax cuts are, in short, one of the dumbest moves this country ever made, taking us in just one year from a surplus economy back into a deficit economy. So, more tax cuts for the wealthy? Why, when they already pay lessthan an equal share?

So, why do poor Republicans fight for rich tax breaks?

Wealthy tax cuts are argued for on the basis that they create jobs, but where are the jobs? We’ve tried that program for almost a decade, and each year appears to show fewer jobs than the year before! When you try something based on promises of jobs for ten years and it yields nothing, it is way past time to stop! The wealthy do not ever create jobs because they get tax breaks. They create jobs because they find markets they can exploit. Markets create jobs. Yes, the tax cuts made the wealthy wealthier, but the wealthy moved the jobs in their companies overseas. (A somewhat separate issue related to free trade.)

Blue-collar Republicans also buy into the tax breaks for the wealthy because they hope that someday they will make good money themselves. Having struggled all their lives, they don’t want to see their good fortune taken partially away from them when their ship comes in. This is the same reason poor people often give large donations to churches run by pastors who drive black Cadillacs. They are told that God will pour out a blessing for them if they give sacrificially. Thus, they are willing to live on even less, just as poor Republicans are willing to pay more than their fair share of the taxes so that they can hope someday to keep more of their share if they make it wealthy.

It never works out that way. The churches do not become full of rich people, even though the televangelists at those mammon-loving churches get richer.

Poor and middle-class Republicans also vote against repealing the Bush tax cuts because they believe Reaganomics worked. In a sense it did, but not in the way they are told by people like Rush Limbaugh. It is true that cutting taxes is bound to stimulate the economy by leaving more money in it. However, it is not true that this works better when the tax cuts are for the wealthy. That money would do even MORE if all of those tax breaks went to the poor. Much more. When the rich get tax breaks, they buy more stocks, which does almost nothing to drive the economy or they buy a new home in a foreign land, which does nothing for local workers, or they buy a football team. When the poor get tax breaks, they buy more clothes, and that is how you create jobs.  You create jobs by creating markets for the rich to exploit, which results in new factories and in jobs for the poor. Tax breaks do more for everyone when they start at the bottom and bubble up.

No rich person ever said, “I’m going to go build a factory because I have more money in my pocket.” Rich people have only said they are going to build a factory when poor people have more money in their pockets and want to buy things with it. The rich are always more than happy to build factories to supply markets. The economy hates a supply vacuum. Markets will be filled by the enterprising wherever a profit can be made.

Moreover, when corporations are given tax breaks to expand that happens by taking and redistributing the wealth of the middle class upward. It is a shift of wealth from the middle class so long as the middle class is paying more in taxes per dollar earned than the upper class, as is the case. So, an argument to raise taxes on the rich only is an argument to stop the transfer of wealth from the middle class to the upper class. This can be done by knocking off all the special subsidies and tax breaks that only the rich enjoy.

Reaganomics worked because you can enjoy one amazing thrill ride when you are buying everything on credit. The national debt soared under Reagan because we were not paying for all that we were enjoying. Not even close. We were buying it now and letting some future generation pay for it. Well, we are now the future generation that has to pay for it. We have come to the end times for the game of play now, pay later. While Clinton turned the game around, George Bush II extended it again with his tax cuts for the rich. You cannot forever accelerate any economy by expanding its debt. Sooner or later you have to start paying off the bills you created in order to make the good times roll, and that brings the good times crashing down. That’s what burst our bubble recently. We now have loads of debt to pay off. We can no longer accelerate our economy with deficit spending. Those days have finally ended.

Along with the end of those days, the end of Bush tax cuts would be a refreshing step forward for the U.S. economy by ending the tax cuts wealthy people alone enjoy. Voting to extend the Bush tax cuts is voting to extend social disparity.

 

For further reading on the Bush Tax cuts:

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4 Comments

  1. Ping from David Haggith:

    Thank you, Mark, for seeking clarification. Yes, that is what I am saying: that the top 1% pay less than 45% of all income taxes but make about 55% of ALL the income in the United States. So, while they have higher tax brackets for part of their income, they have many exclusions such that none of them ever pay anything close to what those brackets indicate.

    The higher tax brackets almost seem to be an intentional smoke screen to cause many of us to think the rich are paying a higher percentage of their income in taxes when they are not. Much of their income also comes from capital gains where they pay a smaller amount than the middle class income tax rate. These things need to be reversed to something that expects as much out of the wealthy as we have saddled onto the backs of the middle class. (See the report linked to in the article for the numbers and statistics to back this up.)

    –David

  2. Ping from Mark:

    I try to have an open mind and would like to understand your argument. In theory, if we had a flat tax then if the top 1% made 50% of all income they would pay 50% of all income taxes. It sounds like you are saying the top 1% make over 50% of total income but pay only 40% of total income taxes. Is that what you are saying?

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