I spent the morning of Tax Day reviewing studies on who pays what in federal taxes. If every taxpayer saw the same data, there would be a revolution.
Let’s start with those who pay no federal taxes: eighty-two of the 275 Fortune 500 companies surveyed in one study. Each of these companies paid no taxes at all for at least one of the years between 2001 and 2003. Twenty-eight of them paid no taxes for any of the three years. The tax code mandates that corporations be taxed for 35 percent of profits, but in 2003 the “average effective rate” paid by the 275 companies was 17.2 percent. The worst offenders, the aerospace and defense industries, paid an average of only 1.6 percent of their profits in taxes. What’s more, the eighty-two companies that avoided paying taxes received a total of $12.6 billion in refunds.
Tax legislation introduced by President Bush and passed by the Republican Congress invited this larceny, notably the changes clustered under the rubric “accelerated depreciation.” That tax cut was justified on the grounds that it would stimulate investment in new plants and equipment. Instead, the twenty-five companies receiving the biggest tax breaks cut investment by 27 percent. Readers with the stomach for it can learn more at the Web site of one of the study’s coauthors, Citizens for Tax Justice, a respected source of tax information and analysis.
Citizens for Tax Justice also posts a study of estate taxes. In 2003, of the 2,448,288 Americans who died, 30,276 (or 1.4 percent) left behind estates large enough to be taxable. The heirs to these estates managed to keep their federal taxes down to a minimum. Estates worth more than $5 million paid an average of 11.5 percent in federal taxes. Even the very largest estates, those worth $20 million or more, were taxed for only 14 percent of their net worth after expenses. (In contrast, most Americans1 wages are taxed at about twice this rate.) Robert McIntyre, the national asset who runs Citizens for Tax Justice, calculates that the 30,000 who paid the estate tax in 2004 come to about forty-eight per member of Congress. “Perhaps our leaders know most of these people personally,” McIntrye writes. They act as if they do: the Republican Congress has cut the tax sharply on the way to abolishing it in 2010, making the United States a paradise to die in.
A second Bush tax cut, on capital gains and dividends, is the subject of papers prepared by the Tax Policy Center and the Center on Budget and Policy Priorities. “American families all across this country have benefited from the tax cut on dividends and capital gains,” President Bush said in a January speech to the Economic Club of Chicago. “Half of American households—that’s more than 50 million households—now have some investment in the stock market.” That statement will not restore Bush’s reputation for honesty. In 2003 Bush cut the tax rate on unearned income to 15 percent. Half of American households benefited, right? That’s Bush’s implication.