Tax Relief for the Prosperous Few
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The political success of the Bush Administration's tax cut strategy will depend on how much they can deceive people as to who gets what. Most Americans, no matter how much they hate paying taxes, do not believe that the richest people should be first in line when it comes to getting tax relief.
The estate tax (dubbed the "death tax" by Republicans in order to make it sound sinister) is something that 98 percent of Americans will never have to worry about. That's because they do not leave enough assets to be taxed when they die. A married couple can already exempt $1.35 million, and this rises to $2 million by 2006. And anything that is left to a spouse is tax-free.
Mr. Bush has proposed to abolish the estate tax. The largest beneficiaries of this generosity would be about 2400 estates that pay half of the tax. The lucky heirs would save an average of about $3.4 million each.
Call it a "Head Start" program for the rich. But the Bush Administration has a different spin: it's all a valiant effort to spare family-owned businesses and farms from being broken up on account of the "death tax."
Reality check: 94 percent of farms, of any size, are not subject to estate taxes. Small farms and businesses have higher exemptions and other special treatments, and there are very few estates that are made up primarily of these assets. In 1998, there were only 776 taxable estates- - less than 1.6 percent of the total-- in which the majority of the estate consisted of family-owned business assets. The number was even smaller for farms.
The tax-cutters have also proposed to fix the "marriage penalty," under which some married couples pay more income taxes than they would if they had filed individual returns. But here, too, Mr. Bush's solution is skewed toward upper-income households-- some of which already benefit from a "marriage bonus," as opposed to a penalty.
The harshest effect of the marriage penalty falls on low-income households who qualify for the federal Earned Income Tax Credit. We are talking couples who earn less than $15,000 each, who can easily lose more than $3000 a year when they get married. Mr. Bush's tax overhaul will not get rid of this inequity.
A detailed analysis of the whole $1.6 trillion tax cut, as done by the Citizens for Tax Justice, shows that 43% of it would wind up in the hands of the richest 1% of taxpayers: those with an average income of $915,000 would get an average tax cut of $46,000 a year. For the bottom 60% of taxpayers (income less than $39,000), the average tax cut would be $227.
Of course, there is a case to be made for shifting the tax burden-- in the other direction. And fortunately, there is a sizeable source of tax revenue yet untapped: financial and currency transactions. A very small tax on the buying and selling of stocks, bonds and currency would barely be noticed by long-term investors, but would discourage speculative trading. Such a tax would not only raise a good deal of revenue, but would help get rid of some of the waste and instability in our bloated financial markets.
In case the projected budget surpluses turn out to be smaller than predicted, a "speculation tax" would supply the necessary revenue for a tax cut to those who most need and deserve it: the majority of Americans, who have not shared in the economic growth of the last quarter-century.
Mark Weisbrot is Co-director of the Center for Economic and Policy Research in Washington and Co- author, With Dean Baker, of "Social Security: the Phony Crisis" (University of Chicago, 2000)