For Democrats wavering in their resolve to end the Bush tax cuts for the wealthiest Americans, shocking new data from the IRS 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.
Following recent analyses confirming that income inequality in the United States has reached record levels, 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 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.
Unsurprisingly, the public disclosure of the top 400 report first introduced by the Clinton administration was halted by President Bush (only to be reinstituted by the Obama White House last year). Unsurprising that is, because the sheer size of the massive windfall for America's rich due to the Bush tax cuts would make a Warren Buffet blush.
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.)
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." So it should come as no surprise that the income share of the 400 richest Americans doubled over the past decade.
And yet, the usual suspects among the Republican Party (and some quislings among the Democrats) are pleading that the rich should be spared even as their share of the national wealth reaches stratospheric levels. Arguing in the Wall Street Journal that the upper bracket tax rates should not be restored to their Clinton-era rates, Ari Fleischer insisted that the top 10% of taxpayers are "supporting virtually everyone and everything" and "their burden keeps getting heavier." Fleischer added, "It's also what's called redistribution of income, and it is getting out of hand."
Oh, it's gotten out of hand all right, just not in the direction Fleischer claims.
But as ThinkProgress detailed, failing to restore upper bracket tax rates to their Clinton-era levels of 39.6% from 35% not only won't help spur economic recovery, it will blow a gaping hole through the federal budget even as it needlessly lines the pockets of the wealthiest Americans:
In an era when everyone seems to be running around screaming about the deficit, there's absolutely no reason to extend these cuts, which this year will give millionaires more in tax breaks than 90 percent of Americans will earn in income. The Bush tax cuts have delivered $715 billion to the wealthiest one percent of the country over the last ten years, and extending the cuts would give households in that one percent $60,000 in additional breaks per year, with millionaires receiving a $150,000 annual break. Over ten years, that amounts to another $1.2 trillion in lost revenue.
Last August, the always excellent David Leonhardt of the New York Times described the toll that the Bush recession had taken on the coffers of the richest Americans. "Over the last two years, they have become poorer," he wrote, "And many may not return to their old levels of wealth and income anytime soon." But the last time they paid a 39% income tax rate, the United States enjoyed a booming economy, rising incomes, low unemployment and expanding budget surpluses.
It may not have been quite as good a deal for the Bush 400, but it worked pretty well for almost everybody else.
(This piece also appears at Perrspectives/a>.)