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.
In fact nearly 40 percent of the stock held by those households is in IRA or 401(k) accounts, which are “not subject to taxation, and thus would not receive a tax benefit from the reduction in the tax rates on dividends and capital gains,” write Joel Friedman and Katharine Richards of the Center on Budget and Policy Priorities. The taxable gains enjoyed by most of the rest are comparatively minuscule. Indeed, the share of income from capital held by the bottom 80 percent of the population has fallen from 23.5 percent in 1989 to 12.6 percent in 2003.
Okay, some Republican politicians argue, but the tax cuts increased the value of all stock, including stock held in IRAs and 401(k)s. Not according to a Federal Reserve study, which found that the tax cuts did not raise the value of stocks. So who gained from the cuts? The top 10 percent of households, who own 70 percent of all taxable stocks, and especially the top 1 percent, who own 29 percent. It gets worse: 54 percent of all income from capital gains and dividends goes to the top 0.2 percent, a group only slightly larger than the 30,000 who leave taxable estates. These folks—the ruling class—derive a third of their income from capital gains. They are taxed on that income at a lower rate then most of us pay on our wages. And we must also pay payroll taxes. They pay no payroll tax on their capital gains.
The Republicans intend making all the Bush tax cuts—in income, capital gains, and estates—permanent in this session of Congress. The cuts have already cost the Treasury $1 trillion. Made permanent, over the next ten years they will cost an additional $2.8 trillion. If not offset by equivalent cuts in spending, the interest on the cuts adds another $492 billion; the cost of making Bush’s cuts permanent thus comes to $3.3 trillion. The cost of the tax cuts already enacted, with interest on the borrowing that paid for them, adds another $3.3 trillion, bringing the total cost of the Bush tax cuts to the Treasury through 2016 to $6.5 trillion.
How much is that? The Center on Budget and Policy Priorities calculates that it is three times the cost of all federal funding for education, three times the cost of all spending on veterans, and thirty times the budget for the Environmental Protection Agency. The total sum of the cuts granted to those earning over $1 million a year alone amounts to nearly what the “federal government spends at all levels on education.” Over the next seventy-five years, the Bush tax cuts will cost about 2 percent of gross domestic product; by contrast, the Social Security shortfall, billed as a calamity by Bush, is 0.7 percent of GDP. A Brookings study found that deficits of the magnitude created by the cuts plus normal spending, far from stimulating growth, will shrink the size of the economy.
And then, of course, there’s the estimated $2 trillion cost of the Iraq War….
George W. Bush is a catastrophic president. And he will be in office for 900 more days.