Taxing the Poor

By Paul Buchheit, AlterNet. Posted November 7, 2007.

Across the U.S., regressive taxes are being used at a local and national level to pay our bills, while the people who take most of the money out of the system are paying less.

Conservative groups claim that the richest U.S. households pay more than their fair share of income taxes. However, when social security and sales taxes are included, the typical wage earner pays about a 40 percent overall tax, about the same percentage as the average American millionaire. Multimillionaires pay even less. The top 400 U.S. taxpayers, with an average income of $151 million, paid 27 percent in total taxes in the year 2000. All other taxpayers, with an average income of $34,600, paid 40 percent in total taxes. The extremely regressive social security tax provides nearly 40 percent of federal revenue.

The biggest insult is what might be called the 'productivity tax.' Wage earners are not being paid what they're worth. Worker productivity has risen steadily since 1980, but compensation has remained stagnant. Every minimum wage worker in America would be making over $22 per hour if the minimum wage had risen at the same rate as CEO pay since 1990. But the minimum wage has crept up to just $5.85 an hour. A recent study calculates that an average two-income family today has less disposable income than one-income families had 30 years ago, largely because of escalating home mortgage, health care, and child care costs. Overtime rules have been changed by the Bush Administration, making it more likely that middle-income workers will lose pay. And studies show that people who lose their jobs are out of work longer and return to the workplace at a lower rate of pay.

Furthermore, hourly earners who don't have the money to buy stocks are unable to benefit from the 15 percent capital gains tax that lowers the overall tax rate for wealthier Americans. Since the richest 1 percent of American households own 77 percent of the stocks, this modest 15 percent tax rate mainly rewards the very wealthy. This sizable capital gains savings has come even as the stock market has grown 7 times faster than the GDP (since 1981). People with the fastest-growing financial assets have been given the opportunity to serve themselves a bigger piece of the pie.

The inequity is made more extreme with the income tax cuts. A study by Citizens for Tax Justice notes that over the ten-year period from 2001 to 2010 the richest one percent of Americans are scheduled to receive tax cuts averaging $34,000 per year. For the 20 percent of families with the lowest incomes, the average tax cut will be $77. The average tax cut for households with incomes over $1 million was $112,000 in 2006. By one estimate, rescinding the tax cuts would supply the $3.4 trillion needed for social security, fully cover Medicare costs, and provide free prescription drugs for all Americans.

And then we have - or don't have - corporate income taxes. The portion of federal revenue derived from corporate income tax has decreased from 33 percent in the 1950s to 11.9 percent in 2005, reaching a low of 7.4 percent in 2003. The General Accounting Office revealed that over 60 percent of U.S. controlled corporations with at least $250 million in assets (93 percent of all reported assets) reported no federal tax liability each year between 1996 and 2000. Eighty-two of our largest corporations paid no tax in at least one of the first three years of the Bush administration. In Illinois, according to the governor's office of management and budget, almost half of the state's corporations with sales over $50 million paid no taxes from 1997 to 2005, yet efforts to collect more corporate taxes were shot down by the business community in early 2007.

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Paul Buchheit is a professor with the Chicago City Colleges, co-founder of Global Initiative Chicago (GIChicago.org), and the founder of fightingpoverty.org. He is the editor and main contributor to the forthcoming book "American Wars: Illusions and Realities" (Clarity Press).

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