Stroke the Rich - Why Kerry's tax policy is right.
sfgate.com
Stroke the rich
IRS has become a subsidy system for
super-wealthy Americans IRS winks at rich
deadbeats
David Cay Johnston
Sunday, April 11, 2004
The federal tax system that millions of Americans are
forced to deal with before April 15 is not at all what you
think it is. Congress has changed it in recent decades
from a progressive system in which the more one
earns the more one pays in income taxes. It has
become a subsidy system for the super rich.
Through explicit policies, as well as tax laws never
reported in the news, Congress now literally takes
money from those making $30,000 to $500,000 per
year and funnels it in subtle ways to the super rich --
the top 1/100th of 1 percent of Americans.
People making $60,000 paid a larger share of their
2001 income in federal income, Social Security and
Medicare taxes than a family making $25 million, the
latest Internal Revenue Service data show. And in
income taxes alone, people making $400,000 paid a
larger share of their incomes than the 7,000
households who made $10 million or more.
While millions of Americans in the last quarter-century
debated about who shot J.R. and scurried for news
about who would be Jennifer Lopez's next lover,
Congress quietly passed tax laws that shift the tax
burden from the 28,000 Americans in households
with incomes of $8 million per year or more.
One 1985 law, promoted in the Senate as relieving
middle class Americans, gave a huge tax break to
corporate executives who make personal use of
company jets. CEOs may now fly to vacations or
Saturday golf outings in luxury for a penny a mile.
Congress shifted the real cost of about $6 per mile to
shareholders, who pay two-thirds, and to taxpayers
who suffer the rest of the cost lost as a result of
reduced corporate income taxes.
Since 1988, Congress has also cut in half the Internal
Revenue Service's capacity to enforce tax laws,
replacing it with extra effort to reduce audits of
corporations and the rich.
On March 30, Congress was told that 78 percent of
known tax cheats in investment partnerships are not
even asked to pay because there are not enough tax
collectors to go after them. Congress and the Bush
administration rejected the request by the IRS
Oversight Board, a citizen panel Congress created, for
extra money to pursue some of these tax cheats and
stop about 1 percent of the $311 billion in estimated
annual tax cheating.
In the late '90s, a crooked banker gave the IRS
records on 1,600 criminal tax cheats who used his
Cayman Islands bank. The Justice Department
prosecuted 49 of them, but the other 1,551 were not
even asked to pay, lawyers for some of them say.
Two billionaires in New York, the art dealer Alec
Wildenstein and his former wife, Jocelyn, testified
under oath in their divorce that for 30 years they never
filed a tax return. They have not been prosecuted.
There are now seminars that show business owners
how to drop out of the tax system with virtually no risk
of detection by the IRS, which relies on a computer
system installed when John F. Kennedy was
president.
As tax law enforcement has declined, illegal tax
evasion has risen, especially among the rich and
more recently among the young.
All of these actions reward cheats at the expense of
honest taxpayers, but because "tax" is a four letter
word in Washington, nothing is done. Those who
support tax law enforcement are denounced on the
campaign trail as advocates of higher taxes.
While letting rich tax cheats run wild, Congress did
finance a crackdown on the poor. The working poor,
most of whom make less than $16,000, are eight
times more likely to be audited than millionaire
investors in partnerships.
The audits of low-income taxpayers found little
cheating. Two-thirds of the poor get either their full
refund or more than they sought.
These and other unseen changes in the tax system
are major factors in profound economic changes that
have caused so many in America to lurch from job to
job, a fourth of which pay less than $8 an hour, while
helping a very few grow very rich.
Because the news media focus on what politicians
say about the tax system, rather than how it actually
operates, few Americans realize that:
-- Corporate income tax laws reward companies that
move jobs offshore, allowing them to earn untaxed
profits as long as the money stays offshore.
-- Widespread cuts in health insurance and pensions
for the rank-and- file are driven by a special law that
lets top executives defer paying taxes for years, in a
way that adds 35 percent to the cost of their bloated
pay.
-- The 2001 Bush tax cuts included a stealth tax
increase on the middle class and upper-middle class
that will cost them a half trillion dollars in the first 10
years and, for 35 million families, wiping out part or all
of their Bush tax cuts.
-- The stealth tax boost on people making $30,000 to
$500,000 was explicitly used to make sure that the
super rich would get their entire Bush tax cuts.
-- A California couple who make $75,000 to $100,000
and have two children face a 97 percent chance of
losing part of their Bush tax cuts to this stealth tax
increase and overall will lose 42 percent of their Bush
tax cuts by next year.
-- If your child becomes seriously ill, Congress, under
this same law, will raise your income taxes if you
spend more than 7.5 percent of your income trying to
keep your child alive.
-- Since 1983, under a plan devised by Alan
Greenspan, Americans have paid $1.8 trillion more in
Social Security taxes than have been paid out in
benefits, money that is used to finance tax cuts for the
super rich while robbing the middle class of their
capacity to save.
-- A family earning $50,000 this year will have about
$1,500 of its money funneled to the super rich
because of the Greenspan plan.
-- Since 1993, the income tax burden on the 400
highest-income Americans has been cut 40 percent
when measured the way that President Bush prefers,
which is by counting how many pennies out of each
dollar go to income taxes. In 1993 the top 400 paid 30
cents out of each dollar in federal income taxes. By
the end of the Clinton administration in 2000 they
were down to 22 cents. Under Bush, their burden is
less than 18 cents. Everyone else felt their tax bite
rise to 15 cents on the dollar from an average of 13
cents.
Over time, the impact of tax relief for the super rich
and more taxes for everyone else is profound. The
rich can save and invest more and more, increasing
their incomes and political power over time through
the magic of compound interest, while everyone else
has less of their money to spend or save and millions
of people are mired in debt.
While wage earners have every dollar of income
reported to the government, the super rich control
what the IRS knows about their incomes. But the rich
are rarely audited anymore. Congress also gives
them many perfectly legal devices to defer reporting
income for years or decades. That means that the
real incomes of the super rich are much larger than
the IRS data show and their tax burden is even lighter.
IRS data, adjusted for inflation, show that the poor are
really getting poorer and the super rich are getting
fabulously richer, a trend enhanced by their falling tax
burden. In 1970, the poorest third of Americans had
more than 10 times as much income as the super
rich, the top 1/100th of one percent. Back then the
poor had more than 10 percent of all income and the
super rich had one percent.
By 2000 the two groups were equal -- the 28,000
Americans at the top had as much income as the 96
million at the bottom. The poor's share of income fell
by half while the super rich's share rose to more than
5 percent of all income.
Not only did the poorest third's share of income
shrink, they actually had less money. The average
25-year-old man in 1970 made $2 per hour more,
adjusted for inflation, than in 2000.
Over those three decades the bottom 99 percent of
Americans had an average increase in total income of
$2,710. That is an annual raise of less than $100 per
year, the equivalent of a nickel an hour raise each
year for 30 years. The super rich did fabulously better,
their average incomes rising $20. 3 million to an
average of $24 million each.
Plot these figures on a chart and the results astound.
If the increase for 99 percent of Americans is a bar
1-inch high, the bar for the super rich soars
heavenward 625 feet.
All of this is having a devastating impact on America,
which the preamble to our Constitution says was
created to "promote the general welfare." Until
Americans decide to take back their democracy and
become actively engaged in politics, the super rich
will continue to rig the tax system for their benefit only.
David Cay Johnston is a Pulitzer Prize-winning
reporter for the New York Times and author of
"Perfectly Legal: The Covert Campaign to Rig Our Tax
System to Benefit the Super Rich -- and Cheat
Everybody Else," from which this article is adapted. |
