There is no legislative act, save the apportionment of taxes on various descriptions of property, in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice.
– James Madison
The really big fortune ... by the mere fact of its size, acquires qualities that differentiate it in kind as well as in degree from what is possessed by men (sic) of relatively small means. Therefore, I believe ... in a graduated inheritance tax on big fortunes ...
– Theodore Roosevelt
(See below: The spirit of JP Morgan)
It has been written that the more things change, the more they are the same. And that certainly holds true when it comes to battles over taxes. True, the powdered wigs of James Madison’s time are gone. And yes, George Bush has replaced "Teddy" Roosevelt. But the issues are the same – who pays and how much.
As the recently concluded lame duck session of the 107th Congress shows, President Bush and the right-wingers who now control both Houses of Congress have been unambiguous about their priorities. Aside from "national security" – defined as war with Iraq – one of their top priorities is another round of tax cuts for those who paid for their narrow victory on Nov. 5.
Although the administration’s long-ranged revisions call for elimination of taxes such as the corporate income tax, the cuts that matter the most to Bush & Co. are those that benefit the very rich, such as immediate elimination of the inheritance tax, taxes on capital gains and making the rest of the 2001 tax cuts permanent. Both will further skew income distribution in favor of the top 5 percent and, within that, the top 1 percent of taxpayers.
And there has been some skewing in the tax battles of recent years.
We begin with the federal estate tax, which will be phased out completely by 2010 under terms of the 2001 tax legislation. It raised approximately $27 billion in 2000 – all from the wealthiest 1.4 percent of taxpayers, an amount more than double the amount of federal income taxes paid by the bottom half of all taxpayers.
Because they are mainly unrealized capital gains, the bulk of the large accumulations of wealth have never been touched by the income tax. Without the estate tax, those gains would remain untaxed forever because the income tax laws forgive those deferred taxes at death. This resulted in a situation where, in 1995, fewer than 32,000 estates paid any estate tax. Only about a third of estates with gross assets under $1 million were taxable, while the average effective tax rate on estates worth more than $20 million was 22 percent.
Although the "family farmer" is the poster boy of the anti-estate-tax campaign, fewer than 5 percent of farms pay any tax and for those that do, the typical tax payment is only about $5,000 and less than 1 percent of total estate taxes are attributable to farm assets. Non-farm family businesses are also a small part of the estate tax collections and amount to less than 3 percent of total assets for estates worth less than $2.5 million.
And then there’s the tax cuts of 2001. Throughout the 2002 campaign Bush hawked his favorite corporate giveaway – making these cuts permanent, and moving up the dates when reductions in the top brackets take effect, ignoring the fact that nearly half of the benefits will go to the wealthiest 1 percent of taxpayers or that the average taxpayer has already gotten three-quarters of the breaks they are entitled to. (Remember that $300 "rebate" check you got in the fall of 2001?)
The Center on Budget Policy and Priorities (CBPP) says the proposal to make the 2001 tax cuts permanent would cost the Treasury approximately $4 trillion between 2010 and of 2020 and come just as the baby boom generation begins to retire and the Social Security and Medicare systems come under increasing financial pressure.
The center says that if the tax cut is made permanent, its cost over the next 75 years will be more than twice as great as the entire 75-year shortfall projected in the Social Security Trust Fund.
The CBPP study argues that permanent extension of the full tax cut risks wasting the resources needed if long-term Social Security solvency is to be restored without deep benefit cuts or sizeable payroll tax increases. Permanent extension of the full tax cut also would make it less likely that Congress will ever be able to find the resources to provide a significant prescription drug benefit for seniors.
The CBPP study says when it is fully in effect the tax cuts conferred on the wealthiest one percent of taxpayers will be:
o 1-1/2 times the Department of Education budget;
o Larger than the budgets of the Department of Veterans Affairs or the Department of Transportation; and
o Nearly nine times the size of the EPA budget.
Corporations haven’t done too bad, either. CTJ says corporate income taxes are at their lowest level as a share of the economy since the early Reagan administration and the second lowest level in the past 60 years.
By comparison, corporate income taxes averaged 5.6 percent of the GDP during World War II, 4.5 percent in the Truman and Eisenhower administrations, 3.7 percent under Kennedy and Johnson, 2.7 percent under Nixon and Ford, 2.4 percent under Carter, 1.6 percent in the Reagan and Bush I administrations, and 2.1 percent under Clinton and 1.3 percent for 2002.
When all of the 2001 cuts are fully in effect, the 1.3 million tax filers who make up the most affluent 1 percent of filers will see about twice as much in tax cuts as the 78 million low- and moderate-income filers who comprise the bottom 60 percent of filers.
And, it gets worse. If Treasury Secretary Paul O’Neill and other members of the Bush economic team have their way, the personal income tax will be replaced by some form of flat tax and the corporate income tax by a value added tax that is, in reality, a hidden form of sales tax. And, of course, they would "simplify" the tax code by replacing the income tax with some form of "flat tax."
When he ran for president in 1996, Steve Forbes, owner of Forbes magazine, made the call for a flat tax the center piece of his campaign, and claimed that such a tax – read "sales tax" – of 23 percent could replace all the main federal taxes including personal and corporate income taxes, payroll taxes and the estate tax.
In an article written at the time, Robert S. McIntyre, director of Citizens for Tax Justice challenged that claim, using figures for 1995. Although somewhat dated, McIntyre’s concerns – and calculations – offer ammunition for today’s battles for an equitable tax policy.
Using the numbers put forward by supporters of the tax, McIntyre said his calculations showed that their purported 23 percent tax rate was "misleading and hypothetical." He added it would require a tax of at least 42 and as much as 56 percent if lost revenues were to be replaced.
At any rate, the battle lines are drawn, just as they were when James Madison warned that the apportionment of taxes gave a predominant party both opportunity and temptation to trample on the rules of justice.
As events in Florida in 2000 and the recently concluded 107th Congress show, President Bush and his henchmen have never been able to resist the temptation to do a favor for their friends. They, perhaps better than most, know how to seize an opportunity when they see – or can manufacture – one. The question is: Can their opponents muster the muscle to stop them? And it just may be possible.
It’s been said that strange bedfellows make politics – that the press of events sometimes makes it possible to build coalitions that can change the direction of those events. Such may be the case when it comes to the upcoming battles over taxes where a significant section of Corporate America has joined others in arguing that future cuts be oriented toward generating more demand for goods and services.
Recently the Business Roundtable, an organization of chief executives from large corporations, startled many of its normal allies by arguing that tax breaks for individuals would be more helpful than tax breaks for business. "There is substantial overcapacity in the economy, so we don’t need more capacity right now," said John J. Castellani, the president of the Business Roundtable. "We felt it would be more prudent and effective to stimulate consumption."
The debate has reached into the ranks of the Republican Party as well, with Senator Charles E. Grassley (Iowa), the incoming chair of the Senate Finance Committee in January, telling reporters, "I am genuinely concerned that Republicans not be chastised for only helping business and the wealthy."
None of this is meant to say that we can depend on the Business Roundtable or the the Senate Finance Committee to do the job that has to be done. But it is to say that these chinks in the armor of Corporate America offer new opportunity in the battle to cram his tax cuts down Bush’s throat.
The author can be reached at firstname.lastname@example.org
The spirit of JP Morgan
No citizen has the moral obligation to assist in maintaining the government. Anybody has the right to evade taxes if he (sic) can get away with it.
–J. Pierpont Morgan
Old JP may be gone but his spirit lingers on. According to Charles Rossotti, commissioner of the Internal Revenue Service, the agency is steadily losing the war with tax cheats, especially the wealthiest and most sophisticated among them. He said the great majority of major tax cheats, in some categories four of five, will be allowed to get away without paying their full share because the IRS lacks the money to enforce the law.
Over all, the IRS gets a budget of 41 cents per tax return, 10 percent less, after adjusting for inflation, than in 1997. Yet during those five years many sophisticated new techniques to evade taxes have come onto the market, sold by the nation’s largest accounting firms and others. And Congress has enacted 293 changes in the tax law and imposed complex rules protecting taxpayer rights.
Rossotti, said the IRS needs to work 13.3 million cases in which documents, primarily from partnerships and similar entities that are used mostly by wealthy investors, do not match up with reports on individual tax returns. In its reports to Congress the IRS said the tax loss from that area alone could be as high as $64 billion.
The IRS has identified 82,100 taxpayers who used offshore accounts to evade taxes, and estimated that offshore evasion alone costs the government $70 billion annually.
– Fred Gaboury
Originally published by the People’s Weekly World