What Happened to That Prosperity Tax-Cutters Promised Us?
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The Institute on Taxation and Economic Policy paper, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, covers non-elderly households. Incredibly, the study details, some states "ask their poorest residents — those in the bottom 20 percent of the income scale — to pay up to six times as much of their income in taxes as they ask the wealthy to pay."
Now you could argue that none of this matters. The Tax Revolters, after all, didn’t claim that their tax cutting and capping would have low- and middle-income people paying taxes at a lower rate than the rich. They claimed, instead, that massive tax cuts, taken as an amorphous whole, would help just about everybody get considerably richer.
That hasn’t happened, as Brookings Institution researchers Barry Bosworth and Rosanna Smart document in a paper just published by the Boston College Center for Retirement Research, with funding support from Social Security.
Bosworth and Smart "explore the consequences of the housing price bubble and its collapse for the wealth of older households."
Along the way, the two investigators dive into the overall family wealth data the Federal Reserve has been collecting since the early 1980s. Tapping into another federal data set, they bring the family net worth picture up-to-date for 2009.
For low- and middle-income families, their numbers tell a depressing story.
All American households — poor, middle, and rich — have lost wealth since the subprime mortgage collapse and last fall’s financial meltdown. On average, since 2007, Americans have lost 26 percent of their total net worth.
But low- and middle-income households under age 50 haven’t just lost a big chunk of the wealth they held in 2007. These households have actually lost all the wealth they had gained since 1983, the first year with Federal Reserve family wealth data available.
Back then in 1983, the bottom third -- by income -- of U.S. families under age 50 had an average $24,000 in net worth to their names, as measured in year 2000 dollars. The housing bubble helped boost this bottom-third average net worth to $27,000 in 2007.
Today, in the wake of that bubble’s collapse, researchers Bosworth and Smart put average bottom-third net worth at just $17,000, in those same year 2000 dollars.
Middle-income households under age 50, meanwhile, held an average net worth of $50,000 in 1983. The current net worth of this middle third, after adjusting for inflation: $45,000.
Older households in the bottom and middle income thirds -- those over age 50 -- have, to be sure, seen their after-inflation net worths increase between 1983 and 2009. But these households have lost at least 22 percent of the wealth they held in 2007. As older families, Bosworth and Smart note, they now "have less time to recover."
That recovery may take some time.
Back in the middle of the 20th century, governments in the United States routinely taxed the rich to pay for the programs that built a vibrant middle class. The Tax Revolt that began three decades ago, by demonizing taxes, gave the rich a free ride and gutted those programs.
That demonization today continues, with politicos beholden to that rich cynically fanning the Tea Party flames. They don’t care who gets burned. The rest of us should.
Sam Pizzigati is the editor of the online weekly Too Much, and an associate fellow at the Institute for Policy Studies.