Taxing the Poor

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.

More and more, our money is going to an elite group of corporate money experts. The average salary for CEOs of large U.S. firms in all industries was $11.6 million in 2005, with some oil company and military defense executives making much more, up to almost $100 million a year. Some hedge fund managers made over a billion dollars in 2006. The money 'earned' by one person would pay the salaries of 40,000 Wal-Mart workers.

America is experiencing the greatest disparity between rich and poor since the Great Depression, with an income gap that is worse than anywhere else in the developed world. Between 1970 and 2000 the annual pay increase for wage earners, adjusted for inflation, averaged 5 cents per hour, while CEO raises averaged $660 per hour. According to a frequently cited study by Thomas Piketty and Emmanuel Saez, incomes actually declined for all but the top 10 percent of American households filing tax returns. A similar study of household net worth produced the same result.

Some analysts admit to a growing inequality, but justify it as beneficial to the economy, or at the very least as a necessary by-product of economic development. Income concentrated among the rich inspires innovative ideas, risk-taking, and new products that benefit everyone. Viewed in another way, the rich are receiving 'performance pay' for a job well done. They also save and invest more.

That may be true, but the claim for widespread societal benefits - all boats being lifted by the rising tide - is not. Government and independent sources confirm that an elite group of about 13,500 Americans have more income than the 96,000,000 poorest Americans. The Economic Policy Institute calculated in 2001 that over 1/4 of Americans with children under 12 were not earning enough to support their families.

We have voices in government and business and the media speaking for the merits of a free-market economy. But we have few defenders of the average wage earners in our country, who deserve a share of the profits commensurate with the sweat and the effort and the skills they put into America's productive economy.

Enjoy this piece?

… then let us make a small request. AlterNet’s journalists work tirelessly to counter the traditional corporate media narrative. We’re here seven days a week, 365 days a year. And we’re proud to say that we’ve been bringing you the real, unfiltered news for 20 years—longer than any other progressive news site on the Internet.

It’s through the generosity of our supporters that we’re able to share with you all the underreported news you need to know. Independent journalism is increasingly imperiled; ads alone can’t pay our bills. AlterNet counts on readers like you to support our coverage. Did you enjoy content from David Cay Johnston, Common Dreams, Raw Story and Robert Reich? Opinion from Salon and Jim Hightower? Analysis by The Conversation? Then join the hundreds of readers who have supported AlterNet this year.

Every reader contribution, whatever the amount, makes a tremendous difference. Help ensure AlterNet remains independent long into the future. Support progressive journalism with a one-time contribution to AlterNet, or click here to become a subscriber. Thank you. Click here to donate by check.

alternet logo

Tough Times

Demand honest news. Help support AlterNet and our mission to keep you informed during this crisis.