Bush Tax Cuts Reinforce Inequality

[I happened to do my Ph.D. dissertation at Columbia on property theory. Thus, I am constantly aware that the distribution of resources is a game in which the savvy or those with an inside track can grab, while those without either knowledge or contacts are left to be exploited by the greedies. The Republican moves in this direction since at least Reagan have been outrageous. Perhaps the public will begin to wake up to the fact that the hands in ones pockets are not those of the conventional pick pockets. They are our bought and paid for legislators redirecting things towards their patrons -- tuition increases, medical expenses, increased housing costs, whatever one needs to survive. Disgusting! Time to awaken people. Ed Kent]

http://www.nytimes.com/2007/01/11/opinion/11thu2.html?th&emc=th

Tax Cuts and Consequences

Published: January 11, 2007

The tax system in the United States is supposed to mitigate inequality. But a recent report by Congress’s budget agency provides fresh evidence that Bush-era tax cuts have done more to reinforce inequality than to redress it.

The agency found that in 2004, the latest year for which comprehensive data were available, the top 1 percent of households pocketed 14 percent of total after-tax income in the United States, up from 12.2 percent in 2003. That increase, the third largest in one year since the agency started keeping track in 1979, works out to an extra $128 billion. And yet despite that hefty gain, the effective federal tax rate of the top 1 percent decreased slightly.

In contrast, the share of after-tax income going to households in the middle of the income distribution fell to 15 percent in 2004, down from 15.4 percent in 2003 — the equivalent of a $29 billion loss. In that time, the share of their income going to federal taxes stayed about the same.

One of the reasons the rich are getting so much richer than everyone else is that investment income is highly concentrated among the richest Americans and has grown robustly through much of the Bush years — unlike wages and salaries. But the rise in investment income hasn’t caused rich Americans’ income taxes to rise substantially because — thanks to the tax cuts of 2003 — investments are now taxed at about the lowest rates in the code.

Another reason for the after-tax advance of upper-income Americans is that an ever larger share of their salaries escapes the payroll tax that pays for Social Security benefits. The annual amount of income subject to the tax — now $97,500 — has been adjusted upward each year since 1982, in line with the increase in average wages. But as pay raises at the top of the income scale have increasingly exceeded the average wage gain, incremental adjustments in the wage cap have been inadequate. In 1982, only about 10 percent of all wages escaped the tax. Today, that figure is estimated at 15 percent. The administration has yet to call for raising the cap, though doing so is a matter of simple fairness.

Unfortunately, with the administration having abandoned fiscal prudence for the past six years, it’s practically inevitable that inequality will worsen. The bill for the deficit-financed tax cuts of the Bush era will arrive in the years to come. It’s likely that the costs will be borne by all, even though most of the benefits have accrued to the few.
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"A war is just if there is no alternative, and the resort to arms is legitimate if they represent your last hope." (Livy cited by Machiavelli)
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