What Happened to That Prosperity Tax-Cutters Promised Us?
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You don’t have to dig particularly deep, in the United States today, to find some striking similarities between today’s virulently anti-Obama "Tea Party" crowd and the media darlings who birthed the "Tax Revolt" phenomenon back in the late 1970s.
The Tax Revolters burst onto the national scene amid an inflation-battered economy. They blamed "big government" for what ailed America, and they offered a simple remedy: cut taxes. Lower taxes, they promised, would get average Americans back on track.
The Tea Party zealots have, like the Tax Revolters, also coalesced in tough economic times. They attack "big government," too. They even make the same promises about taxes.
But the Tea Party types, so far at least, haven’t scored any early political success. The Tax Revolters did. In 1978, in a ballot-box stunner, they passed a statewide initiative in California known as Prop 13, an unprecedented cap on property taxes.
Within a few short years, almost half America’s states had followed suit with tax cuts and caps of their own. In 1980, at the national level, this Tax Revolt surge would carry Ronald Reagan into the White House. One year later, a pliant Congress would give President Reagan the biggest across-the-board federal tax cut in U.S. history.
Tax relief had become, in the wink of an eye, America’s most potent political creed. Tax cutting and capping would go on to dominate the nation’s political discourse for the next three decades, an entire generation.
And what do we have to show for all this cutting and capping? Last week, researchers offered up two new studies that offer up a useful assessment.
The first, funded by the Social Security Administration, looks at the wealth of American families. That wealth, the Tax Revolters assured us,would start amassing again once taxpayers yanked "big government" out of our pockets.
The second new study zeroes in on state and local taxes. After years of tax revolting, this Institute on Taxation and Economic Policy report asks, who exactly is paying taxes at the state and local level? Who has benefited the most, in tax terms, from the Tax Revolt the Tea Party zealots are now so fervently seeking to extend?
The answer: The rich have benefited the most. The Tax Revolt that began back in the late 1970s has, in state after state, let the affluent off the tax hook.
In fact, notes the new Institute on Taxation and Economic Policy analysis, "nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy."
In the entire United States, the analysis adds, "only two states require their best-off citizens to pay as much of their incomes in taxes as their very poorest taxpayers must pay, and only one state taxes its wealthiest individuals at a higher effective rate than middle-income families have to pay."
America’s most affluent 1 percent now pay, on average, just 6.4 percent of their incomes in state and local taxes. But they actually pay even less than that, since they can deduct their state and local taxes from their federal tax bill. The state and local tax burden on America’s rich, after taking this offset into account, drops to 5.2 percent.
Middle-income families -- to be precise, those families who make up the middle fifth of America’s income distribution -- pay, after the federal offset, 9.4 percent of their incomes in total state and local taxes.
America’s poorest families pay even more. Tax collectors take 10.9 percent of the incomes of households in the nation’s bottom 20 percent, more than double the share they take from the incomes of the nation’s top 1 percent.