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Class Warfare With Taxes

By Robert B. Reich, TomPaine.com. Posted December 9, 2005.


When the tax cut battle is between the wealthy and super wealthy, it looks like both groups win. So, guess who's going to foot the bill.
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Tax bills now wending their way through the House and Senate would cut about $60 billion in taxes next year. But there's a huge difference between the two. The biggest item in House bill is a two-year extension of the president's tax cuts on stock dividends and capital gains. The House bill doesn't touch what's called the Alternative Minimum Tax (AMT). By contrast, the biggest item in Senate bill is temporary relief from the AMT. But the Senate bill doesn't extend the dividend and capital gains tax cuts.

No legislative choice in recent years has so clearly pitted the super-rich against the suburban middle class. Most of benefits of the House's proposed extension of the dividend and capital gains tax cuts would go to the top one percent of taxpayers, with average annual incomes of more than $1 million. Most of the benefits of the Senate's cut in the AMT would go to households earning between $75,000 and $100,000 a year, who would otherwise get slammed.

The AMT was enacted more than three decades ago to prevent the super-rich from using tax breaks to avoid paying income taxes. But it's now the super-rich who are making off like bandits, while the AMT is about to hit the middle class. That's because the AMT was never indexed to inflation, which means it's starting to reach taxpayers considerably below the super-rich.

This year, the AMT will affect more than three million middle-class taxpayers who will no longer be able to deduct state and local taxes or use the child tax credit. Next year, if not adjusted, it will affect ten million more taxpayers. So unless the Senate version of the new tax bill prevails, middle-class taxes will rise -- even as the Bush tax cuts of 2001 and 2003 continue to reduce taxes on the very wealthy.

Here's where things get politically interesting. Both groups -- the super-rich and the upper middle class -- have lots of political clout in Washington, especially in Republican circles. So as these two tax bills move on a collision course, the multi-billion dollar question is: Which group will win?

The likely answer: Both! Here's betting the Senate and House will compromise by extending the dividend and capital gains tax cuts and cutting the AMT. It's an elegant compromise, of the sort Washington is skilled at making. There's only one problem. With it, the budget deficit will explode even more.

The underlying question is, who ends up paying for Iraq, the Katrina cleanup, the Medicare drug benefit, homeland security, everything else? If the House has its way, it won't be the super-rich, who will get their capital gains and dividend tax cuts extended. If the Senate gets its way, it won't be the middle class, who would otherwise be hit by the AMT. If the House and Senate compromise by giving both groups what they want, there's only one group left.

That group is the poor and near-poor. Cut more taxes on the super-rich and the middle class, and the only way Congress can say it's grappling with the soaring budget deficit is to cut more programs for the poor. That means fewer food stamps, less Medicaid and vanishing housing assistance.

Of course, this won't be nearly enough to shrink the deficit. So in order to extend the tax breaks for the rich and to avoid the AMT, America will have to rely even more on foreigners -- from whom we're already borrowing more than $2 billion a day.

In the end, it will be our kids and grandchildren who get the tab, because they'll have to pay foreigners back. And our current political leaders? They couldn't care less -- because by then, they'll be long gone.

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drew
Posted by: drew on Dec 9, 2005 1:58 AM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
yet another area of concern that one asks "where are the democrats- asleep, apathetic or inarticulate?"

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» RE: drew Posted by: Lincoln fan
» RE: drew Posted by: Gma1
» RE: drew Posted by: Lincoln fan
The federal tax code is only half of it
Posted by: sausage on Dec 9, 2005 7:34 AM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
In my home state the Democratic governor pushed for and got a taxpayer supported fund that literally gives away money to large corporations. This is supposedly in exchange for a promise by the corporations receiving the money to not move out of state and to "create" more jobs. The state moneys are then supplemented by "tax increment fiancing" proposals from city and county governments. The overall theory seems to be that "if" these corporations "create" new jobs, then the new "workers" will pay more in state income and sales taxes. And, usually twenty years or so in the future, all the property tax "incentives" fall away and the corporation pays its "fair share" of local property tax.

Of course, out here in the Midwest, states, counties and municipalities often declare surrounding corn fields "economically depressed areas" which are therefore ripe for private development, TIFs and various and sundry governmental grants, forgivable loans, etc. And since most office complexes these days are outmoded, too small and shoddily constructed before a local or county government starts to recoup all the "tax incentives" in the form of higher property tax rates, a new corn field is sited and the process starts over.

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Fix the AMT
Posted by: JSquercia on Dec 9, 2005 8:31 AM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
A rather obvious way to fix the AMT is to bring it back to what it was intended to be a Minimum Tax on the
weathy .
The most logical and straightforward way to do this is mathamatically adjust for the inflation that has occurred since its inception . This is a task any good high School Math student could do . I could make an argument that certain items should never have been included in the first place as the stated purpose was to stop the use of loopholes by the
wealthy . I would contend that State and Local Taxes are NOT a loophole nor are Children . I find these quite differant than the use of Oil depletion allowances and Intangible drilling costs .
That of course is a subject for another debate .
As a Social Security recepient I find myself being taxed on 85% of my Benefit also partly due to fact that the thresholds for taxing these benefits were also NOT indexed
There was a time when there was NO tax on Social Security
Benefits but then along came Reagan who was incensed that the 50% provided by your Employer was NOT taxed .
Ronnie also instituted for the First time a Tax on Unemployment Benefits using the same logic that the worker had not contributed towards them and so they should be considered taxable income . Talk about kicking a man when he's down . Lose your job , lose your Medical Coverage and get considerable less than your Former salary
and now to further abuse you we will tax that amount .
On the subject of Capital Gains taxation I believe for stocks held over 5 years the rate can be 10% . The cut on dividends is so discriminatory it is just awful . Warren Buffet pointed that he could elect to take his pay in the form of dividends as Berkshire Hathaway is a closely held company . The mere Act of doing that would result in a savings of over 20% (36%-15%) . Nice work if you can get it but of course MOST of us can't ever get that kind of control over our compensation .
I will close with another Buffet gem in which he said " If there is CLASS WARFARE then all I can say is MY side is
winning ." Truer words have never been spoken !!!

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» RE: Fix the AMT Posted by: Lincoln fan
ECLECTICIST, S. JIM RODRIGUEZ
Posted by: SJR505 on Dec 9, 2005 8:36 AM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
This "QUESTION AS POISED" is unnecessary just ask any concerned, patriotic American making less than $ 1 million...
Our nonmillionaire family knows 10+ millionaires that haven't paid any taxes in the past 10 years, you figure it out who is paying the taxes...

Futrher, if any common sense American is waiting for the Congress to help the American public, forget it...Just look at the government's response to the Katrina, Rita hurricanes evacuees... Many people are still waiting with "bated breath " to receive assistance from "FEMA"... It was our friends, neighbors were the "first responders" , not Bush 43's cronies and his friends...
Moreover, forget any actions to occur from " TURD BLOSSOMS" in the U.S. Congress...There arn't any Men and women left to address these pervasive issues of taxes, debt, Iraq, education, etc... Only the "GIRLIE-MEN/WOMEN" with their "vacuous" approach to problem resolution and "Photo-Ops" personalties need apply in our Congress...Only in America can one purchase " FREEDOM " from the shelf...

S..JIM...RDORIGUE+++EL ECLECTICIST+++
333333333333333333333333333333333333333333333333

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The rape of the public treasury is always sold as help for the 'little guy.'
Posted by: Sojourner on Dec 9, 2005 8:46 AM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
I cannot ever remember a tax proposal that was not promoted as fairness but turned out to be an excuse for making the rich richer.

Kevin Phillips, a Nixon Republican, writes books regularly that demonstrate our time as the greatest give-away transfer of wealth to the rich in American history.

But, I admit, I have given up hope for our current decision-makers. We are acting as if there were no tomorrow. That's a self-fulfilling prophecy. The best way to ensure there is no tomorrow is to take the money and run.

I fear that it is necessary for us to sink to the bottom before "the right of the people" will assert itself.

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The Administration needs to retake Econ. 101
Posted by: monkeywrench on Dec 9, 2005 9:39 AM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
. . .And this from a president who claimed to have "earned" an MBA degree in business. Did somebody else take his tests for him and write all his papers in college? We need an investigation.

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Barefoot, pregnant. . .and bankrupt.
Posted by: monkeywrench on Dec 9, 2005 9:49 AM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
It's easy to dump on the lower classes; after all, most of them cannot afford the bus ticket to go to Washington to storm Congress and the White House. . .no matter how many more millions of them (us?) will be generated by this administrations's fiscal genocide.

I'm only half kidding when I ask that if this march-to-the-bottom continues, and bankruptcy has been legislated away, will concentration camps for the destitute (to make the streets safer for the well-off) be very far behind? (We almost have them now with the largest per-capita prison system in the world.)

Watch out, folks; the Lords of Darkness are upon us once again. . .

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From a "Pro's" PoV
Posted by: txansr1040 on Dec 9, 2005 10:23 AM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
As a professional tax consultant, when I do over 800 personal and small business (self-employed) tax returns a year (with over 600 in the 3 1/2 months between January and April 15th), I can tell you from first hand experience that the ALTMIN, as we pro's call it, is not working as it was intended to work.

AltMin was originally enacted to prevent the very wealthy from taking advantage of their ability to have HUGE Schedule A, Itemized Deductions, to reduce their taxable income with. (Taxable income = Gross income - certain adjustments to income - itemized deductions - personal exemptions)

In over 10 years of practice I've seen AltMin become more of an issue for people with income in the low 100's. This is criminal.

Living in one of the most expensive counties of the United States, having an income of $100,000 a year is almost a requirement. AltMin was intended to protect people with lower income by forcing those with higher incomes (read Michael Jordan or Michael Jackson or other similar persons, I am NOT singleing these individuals out, but using them as examples only) to not be able to take advantage of "tax preference items" such as those on the Schedule A.

Since AltMin was enacted, it has not been adjusted for inflation as other tax items have been, which means that more people, with less income, will become subject to its restrictions. This is unfair.

Congress must NOT repeal AltMin, but must adjust it in a "middle income class" preference manner so that it become the fair tax again.

If any of you have any questions you can contact me at: txansr1040@hotmail.com. I am very proud of my profession and work very hard to explain the system to my clients, and the public in general. Knowledge is power in this country. With knowledge we can win this war against the "establishment."

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AndieGee
Posted by: Andie927 on Dec 9, 2005 11:21 AM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
How about just eliminating Schedule A, and all the exemptions? The government really shouldn't be in the business of deciding where, how, or on what you spend your money!

I have one question, since when did $100,000 get to be 'middle-class'. In my research of area's to purchase a home, I haven't seen that listed as the 'median' income ANYwhere! Yes, I understand the difference between median and average. I see a lot of the 40,00 to 60,000 range, nothing close to 100,000!

WE, have owned proterty in both Florida and Ma. and I know that in both states the (Repug. Gov.) sent letters to every property tax office, to raise evalutions to 'current market'. This has forced many families and elderly out of their homes! If your property tax doubles and triples, to the point where your paying 200 to 500 dollars a month, that hurts! Why? T
o make up for the money the States are no longer getting back from the Feds.

While they're (Congress) are adjusting the income for inflation on the Altmin, let's go for the Social Security Cap, while they're at it!

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Class warfare or the real thing?
Posted by: veive on Dec 9, 2005 12:28 PM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
I figure it's only a matter of time until the 2nd Revolutionary War commences. Actually it's the 3rd because the Civil War was only a revolt by a different name. This society's trajectory is clearly downward for the vast majority and our "democratic" principles aren't much help. Actually, the representatives in our representative government only represent the guys who have bought and paid for them. Given no realistic political solution to the grotesque travesty that modern America has become, it looks like we'll soon be following Iraq's example, which is modeled on the former Yugoslavia's example. The superb irony is that our "mission" to bring democracy to the middle east is being carried out while we divest ourselves of democracy here at home.

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corylus
Posted by: corylus on Dec 9, 2005 8:54 PM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
No solutions here, Reich, just more blathering about the vast inequity of how the legislative branch of government does the bidding of the corrupt executive branch. Most of the other comments also do little more than provide meaningless details about a completely broken system that has been co-opted by the rich to maintain the status quo.

Despite what Reich says in conclusion, the obscenely rich don't necessarily have to be long gone before the bills come due for their liability in aggravating classism, racism, and poverty. Holding the corrupt corporate whores in Congress and the Bush Administration (and any of those hanging around from previous admins) accountable now, through impeachment and voting them out of office in favor of alternative party candidates, may offer a partial solution. Failing that, perhaps the time is due for the big bang solution: widespread strikes, sabotaging of corporate property, and massive civil disobedience. If 20 million working Americans didn't go to work for a week, or refused to pay taxes for a year, that might garner some attention. Of course, a random political assassination or kidnapping also might get the message on the front pages of the aristocratic press.

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» RE: corylus Posted by: Lincoln fan
Well Hello!!!
Posted by: polyquats on Dec 9, 2005 10:48 PM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
This is capitalism, not democracy. You know, the system where the means of production owns the state (as opposed to that other 'evil' system, where the state owned the means of production).

America, you are paying the price of your years of apathy. You could wake up and vote now, but it's probably too late.

Proverbial frogs in hot water.

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Democrats
Posted by: gathaiga on Dec 10, 2005 7:03 AM   
Current rating: Not yet rated    [1 = poor; 5 = excellent]
The Democratic leadership's bellies are full, they are asleep at the wheel, and a crash is imminent.

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» montana freeman Posted by: trace