10 Inconvenient Truths for Tax Day
With Tax Day again upon us, two story lines will predictably dominate the media coverage on April 15th. In their perpetual war on taxes, conservatives will claim that rates are too high even as those Americans who receive tax credits get "welfare." Meanwhile, frothing-at-the-mouth Tea Partiers will protest about being "Taxed Enough Already."
Sadly, the numbers tell a different tale. After a decade of the Bush tax cuts, it's clear that only one side is fighting - and winning - the class war. As for the Tea Baggers, they aren't merely, as Jon Stewart suggested last year, "confusing tyranny with losing." They are confused about so much more.
Here, then, are 10 Inconvenient Truths for Tax Day:
- Over 95% of Working Households Got Tax Cuts
- Only 2% of Tea Baggers Know Obama Cut Their Taxes...
- ...and 52% of Tea Partiers Think Their Taxes are Fair...
- ...and Think the Federal Tax Level is Over Double What It Is
- 1% of Families Earned 24% of All Income...
- ...and 57% of All Capital Income
- 400 Richest Taxpayers Saw Incomes Double, Tax Rates Halved
- Only 1 in 500 Families Pay the Estate Tax
- Corporate Taxes Have Plummeted as a Share of GDP
- The U.S. Loses $345 Billion a Year to Tax Evasion and Fraud
The details and data on each follow below.
As promised, President Obama delivered tax relief to over 95% of working American households. But you don't have to take the White House's word for it. As Nate Silver, Citizens for Tax Justice and others also documented, "President Obama Cut Taxes for 98% of Working Families in 2009."
Sadly, furious Tea Partiers seem to be unaware that they are beneficiaries of "no taxation with representation." A CBS poll in February found that only 12%o of respondents thought that the Obama administration had already lowered taxes, while 53% believed they remained unchanged. But among the boiling Tea Baggers, the cognitive dysfunction was almost total:
Of people who support the grassroots, "Tea Party" movement, only 2 percent think taxes have been decreased, 46 percent say taxes are the same, and a whopping 44 percent say they believe taxes have gone up.
Tea Party confusion over the taxes they claim to detest manifest itself in myriad other ways. On the eve of their final Tea Party Express rallies this week in Boston and Washington, CBS asked Americans, "Is the income tax you will pay this year fair?" 62% of respondents overall said yes. Again, among the denizens of Tea Bag Nation:
Yet while some say the Tea Party stands for "Taxed Enough Already," most Tea Party supporters - 52 percent - say their taxes are fair, the poll shows. Just under one in five Americans say they support the Tea Party movement.
However, those most active in the Tea Party are less satisfied with the amount of income taxes they will pay. Fifty-five percent of Tea Party activists - those who have attended a rally or donated money - (about 4 percent of Americans overall) say their income taxes are unfair.
Why the sudden reasonableness from the Birthers, Birchers, Deathers and Deniers of the Tea Party? For one, as the Tax Policy Center detailed, income tax revenue as a percentage of gross domestic product (GDP) has been roughly unchanged for 50 years, hovering at around 8%. And as the Center on Budget and Policy Priorities recently showed:
Middle-income Americans are now paying federal taxes at or near historically low levels, according to the latest available data. That's true whether it comes to their federal income taxes or their total federal taxes.
To put this discussion of federal taxes and spending in context, it is also important to note that the Tea Party supporters can't. As former Reagan Treasury official Bruce Bartlett wrote last month, "For an antitax group, they don't know much about taxes."
Among other findings in a survey of the assembled DC Tea Baggers on March 16:
Tuesday's Tea Party crowd, however, thought that federal taxes were almost three times as high as they actually are. The average response was 42% of GDP and the median 40%. The highest figure recorded in all of American history was half those figures: 20.9% at the peak of World War II in 1944.
While all eyes have been on the supposed Tea Party movement, the United States has reached levels of income inequality not seen since 1929.
As the New York Times reported in August, "for most of the last 30 years, the incomes of the richest have risen rapidly." The Times' stunning chart neatly summarizes the massive upward redistribution:
Share of income for the top 1%: In 2007, 24% of income went to the 1.5 million families who earned more than $400,000.
Share of income for the bottom 90%: In 2007, 50% of income went to the 135 million families who earned less than $110,000.
(Only the steep Bush Recession led to the rise of the super rich hitting, as the Times put it, "a sobering wall.)
As the Center for American Progress noted, the Bush tax cuts delivered a third of their total benefits to the wealthiest 1% of Americans. And to be sure, their payday was staggering. The Center on Budget and Policy Priorities detailed that by 2007, millionaires on average pocketed $120,000 from the Bush tax cuts of 2001 and 2003. Those in the top 1% stashed an extra $45,000 a year. As a result, millionaires saw their after-tax incomes rise by 7.6%, while the gains for the middle quintile and bottom 20% of Americans were a paltry 2.3% and 0.4%, respectively. (Other CBPP studies demonstrated that the Bush tax cuts accounted for half of the mushrooming deficits during his tenure in the White House and will continue to do so over the next decade.)
Now as in the 1990's, Newt Gingrich has a "bold idea": "We eliminate the capital gains tax." During the 2008 campaign, Republican candidate John McCain proposed only slashing the capital gains rate from 15% to 7.5%. That change would have netted a $55,000 annual payday to McCain and his beer heiress wife Cindy, but would have delivered 60% of its benefits to families earning over $1 million a year.
An analysis by University of California-Santa Cruz Professor G. William Domhoff explained why:
A key factor behind the high concentration of income, and another likely reason that the concentration has been increasing, can be seen by examining the distribution of all "capital income": income from capital gains, dividends, interest, and rents. In 2003, just 1% of all households -- those with after-tax incomes averaging $701,500 -- received 57.5% of all capital income, up from 40% in the early 1990s. On the other hand, the bottom 80% received only 12.6% of capital income, down by nearly half since 1983, when the bottom 80% received 23.5%.
And as the New York Times uncovered in 2006, the 2003 Bush dividend and capital gains tax cuts offered almost nothing to taxpayers earning below $100,000 a year. Instead, those windfalls reduced taxes "on incomes of more than $10 million by an average of about $500,000." As the Times revealed in a jaw-dropping chart, "the top 2 percent of taxpayers, those making more than $200,000, received more than 70% of the increased tax savings from those cuts in investment income."
For Democrats wavering in their resolve to end the Bush tax cuts for the wealthiest Americans, shocking data released by the IRS in February should hopefully stiffen their backbones. Between 2001 and 2007, the 400 richest taxpayers doubled their annual incomes to an average of $345 million, while their effective tax rate plummeted to only 16.6% from 29.4% in 1993.
Noted tax journalist David Cay Johnston summed up the new data, "The incomes of the top 400 American households soared to a new record high in dollars and as a share of all income in 2007, while the income tax rates they paid fell to a record low. The numbers tell the tale of the widening chasm between the uber rich and everyone else:
In 2007 the top 400 taxpayers had an average income of $344.8 million, up 31 percent from their average $263.3 million income in 2006, according to figures in a report that the IRS posted to its Web site without announcement that were discovered February 16...
Adjusted for inflation to 2009 dollars, the top 400 enjoyed a 27 percent increase in their income, or nine times the rate of increase for the bottom 90 percent...Since 1992, the bottom 90 percent of Americans have seen their incomes rise by 13 percent in 2009 dollars, compared with an increase of 399 percent for the top 400.
The Republican scam over the so-called "death tax" is as bogus now as it was when President Bush first perpetrated it nine years ago. The House GOP budget, fittingly unveiled by Rep. Paul Ryan on April Fool's Day 2009, would eliminate the estate tax altogether. While Nevada Senator John Ensign griped, "It destroys a lot of small businesses and a lot of family farms and ranches in America," House Minority Leader John Boehner (R-OH) groused:
"People who aren't wealthy, who may have built up value in land over generations and many family farms find themselves in situations where they've got to sell the farm in order the pay the taxes."
As it turns out, of course, not so much.
As the Washington Post explained, under President Obama's proposal (exempting couples with estates under $7 million with a 45 percent rate for amounts beyond that) 99.76% of estates would pay no taxes whatsoever. While CBPP estimated that only 1 in 500 estates is impacted by the current law, the Tax Policy Center quantified just how few family farms or small businesses are actually impacted by the estate tax proposals under consideration:
We estimate that under the Obama proposal, 100 family farms and businesses would owe tax. (We define such estates as those where farm or business assets are valued at under $5 million and comprise the majority of estate assets.) The Lincoln-Kyl proposal would cut the number to 40. Even under current law, fewer than 2,700 family farms and businesses would owe tax.
And that wasn't good enough for Arizona's Jon Kyl, the second-ranking Republican in the Senate. Thanks to his obstructionism in December, the estate tax temporarily expired for one year as of January 1, 2010. (Barring new legislation in Congress, in 2011 the rate will jump back up to its pre-2001 Bush tax cut level of 55%, starting at $2 million per couple.) That could cost the U.S. Treasury billions this year. In the mean time, the message from the GOP to the wealthiest Americans is "die here, die now, pay less."
In the April 14th edition of the New York Times, David Leonhardt noted:
Over the last 30 years, rates have fallen more for the wealthy, and especially the very wealthy, than for any other group. At the same time, their incomes have soared, and the incomes of most workers have grown only moderately faster than inflation.
But for one other group of "persons" - corporations - the tax burden has also decreased dramatically.
This development is demonstrated by Exxon and General Electric, which despite their pre-tax incomes of $35 billion and $10.3 billion respectively paid Uncle Sam exactly zero dollars last year. As a 2008 GAO study found, about two-thirds of businesses of all sizes pay no corporate taxes at all to the United States government.
The irony was not lost on Tom Schaller, who wrote at FiveThirtyEight.com:
Income taxes as a share of GDP have held steady during the same time period. Corporate and excise taxes, paid mostly by businesses and which conservatives complain are inefficient and simply passed through to consumers anyway, have gone down as a share of that 20 percent. What's gone up are payroll taxes which fund programs like Medicare and Social Security that the same tea partiers were warning Obama and congressional Democrats not to touch in the same breath they were complaining about the socialist expansion of the healthcare system.
When Phil Gramm and the Republican Party first launched their 1990's war on the Internal Revenue Service, the agency estimated its losses due to tax fraud, cheating and evasion reached $195 billion a year. By 2007, the revenue lost to Americans' government had catapulted to $345 billion.
If the declaration of Austin IRS suicide pilot Joseph Stack sounded familiar ("Well Mr. Big Brother IRS Man, let's try something different, take my pound of flesh and sleep well"), it should.
As David Cay Johnston describes in his book Perfectly Legal, the GOP during the Clinton administration waged an all-out war on the IRS, turning the priorities for auditing Americans upside-down. As Delaware Republican Senator William Roth's Finance Committee held hearings in 1997 and 1998, Mississippi's Trent Lott decried the IRS' "Gestapo-like tactics." Frank Murkowski (R-AK) similarly denounced those supposed "Gestapo-like tactics" while excoriating the Agency, "You don't need to send in armed personnel in flak jackets." Don Nickles of Oklahoma raged, "The IRS is out of control!" Meanwhile, GOP pollster and wordmeister Frank Luntz quizzed focus groups with his favorite question, "Which would you prefer: having your wallet or purse stolen or being audited by the IRS?" For his part, then Senator Phil Gramm in May 1998 denounced the agency and its director, Charles Rossotti. Peddling myths of jack-booted IRS agents tormenting American taxpayers, Gramm called on Rossotti to fire his 50 worst employees, before concluding:
"I have no confidence in the Internal Revenue Service of this country. You do not have a good system. This agency has too much unchecked power."
No surprise, Congress went on to pass and President Bill Clinton to sign the IRS Reform and Restructuring Act in 1998. And as Johnston documented, "In 1999, for the first time, the poor were more likely than the rich to have their tax returns audited." (Mercifully, that practice has been reversed under the Obama administration.)
As for Gramm and his ilk at UBS and other Swiss bank, the IRS is finally cracking down on the secret offshore tax havens that are costing the federal government billions each year. But the atmosphere of hostility towards the IRS and the basic civic duty of paying taxes remains. And that missing $345 billion represents about one-tenth of the total federal budget.
Joe Biden was right: Asking wealthier Americans to pay higher taxes is "patriotic."
(This piece also appears at Perrspectives.)