Democrats & Liberals Archives

Where Did All the Tax Cuts Go?

The primary message of Republicans is tax cuts: We must have tax cuts to make the economy grow, to produce jobs, to reduce the deficit, to fight terrorism, to increase American freedom…. Tax cuts are the cure for everything. And reduce taxes is exactly what George W. Bush did during his 8 years in office. YOUR taxes did not decrease. MY taxes did not decrease. So where did all the tax cuts go?

Kevin Drum at Mother Jones provides the answer with this diagram:

The red line shows what happened to income tax rates of households with income of $1 million and more from the '90s until 2007. It went down precipitously from about 30% to 16%. Take a look at the blue line that represents what happened to the top 400 households. They did better than anyone.

What happened to the rest of us? Not much change in income, unless we lost income due to job loss. Not much change in taxes. For the most part we pay a higher rate than the millionaires and billionaires. If you work as a store clerk or a bank clerk or as a factory worker, your tax rate is greater than that of someone who does not work at all but stays home collecting money from investments.

The tax code is riddled with all sorts of gimmicks to allow rich people to evade paying taxes. One of the worst is the so-called capital gains tax, which supposedly increases investments that produce jobs. All it really does is make the rich richer. Another great tax loophole is deduction for losses. These loses need not be real; they may be due to something like "depreciation," a boon to real estate investors.

Michael Hiltzik, in today's L.A. Times, presents a case about the McCourts, who use "losses" to bring their taxes down to zero:

The McCourts, who own the Los Angeles Dodgers (so she says; he says he's the owner and she's not), jointly pocketed income totaling $108 million from 2004 through 2009, according to documents Jamie McCourt recently filed in the couple's divorce case in Los Angeles County Superior Court.

On that sum, they paid zero federal and state income tax. Jamie suggests that some tax breaks will apply this year too.

What's meant by "losses"? Jamie's lawyer, Bert Fields, answers: "They're tax losses. I don't mean real losses."

Another form of "loss" they used is depreciation. The depreciation is not real either. It's a "loss" only to show the IRS.

The tax code is packed with such goodies to allow rich people to reduce their taxes. Who do you think pays? You and I. You see, someone has to pay taxes. So when you cut taxes for the rich, the rest of us have to pay.

Where did all the tax cuts go? To the rich. To make sure they continue to get tax cuts they give generously to Congress. If you and I want tax justice we must break up this symbiotic arrangement.

Posted by Paul Siegel at February 25, 2010 1:52 PM
Comments
Comment #296246

Paul

As the rate have gone down, the % paid has gone up. The lower 50% of Americans essentially pays NO Federal income taxes and the lowest 20% actally makes money from taxes.

You cannot cut tax rates for those who don’t pay any, but it is true that the tax rate for the pooret Americans is zero OR they make money.

Posted by: Christine at February 25, 2010 2:31 PM
Comment #296247

Christine, what is the source for your figures. They appear outrageously INCORRECT!

I am pretty sure our family is in the lower 50%, and we pay nearly $10,000 per year in federal taxes alone. Our total taxes are in the $26 to $28 thousand dollars per year.

What is your source?

Posted by: David R. Remer at February 25, 2010 3:27 PM
Comment #296248

My son made just over $10,000 and paid federal income taxes. Not much. Nevertheless, he paid.

Posted by: phx8 at February 25, 2010 3:54 PM
Comment #296250

I just got my taxes back yesterday. Our family is in the 25% income bracket and our effective federal tax excluding socials (Income Tax/AGI) was 11%. State was 5%. So I’m doing better than those rich folks in the graph on both a percentage basis and especially on a real dollar basis. 22% of $1m means they pay $220,000 in federal taxes alone. Ouch…

phx8 are you claiming your son as a dependent? If so then he pays taxes over $3500. If not then the standard deduction and personal exemption would have left him next to nothing in AGI. Did he take his “Making Work Pay” $400 credit?

Posted by: George at February 25, 2010 4:45 PM
Comment #296252

Perhaps Christine is talking about Social Security recipients? Her numbers seem flawed unless she believes retirees are a drain on our tax base…

Posted by: Marysdude at February 25, 2010 4:57 PM
Comment #296253

George, the difference between unenlightened greed and me is: If I made a million dollars last year, I would gladly have paid $220,000 in taxes, to live in America where making the million was possible, and where my remainder of $780,000 is safe and protected from criminals, terrorists, and others who would take it away from me, or worse, to get it, were it not for my government and fellow Americans who uphold and defend the rule of law, not avarice and greed.

The truth is, most wealthy people really don’t object to paying their taxes. This was documented in a poll a number of years ago during the Bush administration. What they mind is, the government not getting the most social, security, and economic benefit for every tax dollar they pay. And a great number in the middle class agree as well, on this.

Posted by: David R. Remer at February 25, 2010 5:09 PM
Comment #296254

Correction: My family’s total taxes are in the 13 to $14,000 range. One too many decimals places in our property taxes in my previous comment.

Posted by: David R. Remer at February 25, 2010 5:12 PM
Comment #296255

I’m sure Christine can defend herself but here is an article from CBS News last year:

43% of Americans pay no federal income tax

Posted by: George at February 25, 2010 5:15 PM
Comment #296260

David, this post is more to do with envy than greed. Paul points out that the “rich” get tax cuts in classic “eat the rich” style. Problem is the we are already eating the rich. I’m as middle class as it gets and a smaller percentage of my pay goes to federal income tax thanks to Republicans (cross the board tax cuts) and Democrats (working tax credit, house buying credit, cash for clunkers, etc). Christine rightly points out that there is a growing population of Americans who pay little tax, no tax, or even negative tax.

Seems to me we better stop deamonizing the rich and instead hope they stick around.

Posted by: George at February 25, 2010 8:12 PM
Comment #296261

George-
First, if we take your argument to its logical conclusions, it means one or both of two things:

Raise taxes on the Middle Class, to address that unfair advantage.

and/or

Cut taxes for the rich, so they don’t bear so much of the burden.

I would guess that the second option would be the more politically correct of the two options, though your people certainly objected loud enough to Obama’s tax cut to the middle class.

Look, we gave the Rich of the country 2.5 trillion dollars in tax breaks on income tax alone. And it was voted through on reconciliation, which Republicans have now discovered is the devil.

Now they complain when a few billion goes to the middle class. They complain that they’re paying all the taxes. Well, folks, you’re taking in a larger share of the income now than you have since the last great depression. If you want people to share more of the income taxation, share more of the wealth it’s based on.

Posted by: Stephen Daugherty at February 25, 2010 8:16 PM
Comment #296262

George

Thanks.

David

I paid less after the tax cuts than before. Everybody who paid taxes got a tax cut. But it is impossible to cut all taxes in way that doesn’t cut taxes more for the rich, since they pay a lot more.

Some people advocate higher tax rates.

Re paying taxes, it is a matter of principle.I don’t know anybody who thinks that there should be no taxes. But we wonder about the “fair” share.

Let me compare myself to myself. I make twice as much money as I did 25 years ago. I think my new self should pay more in taxes than my old self because new has more capacity to pay than old. But there is no good reason to design a system that gives old a free pass or tries to redistribute the income.

Beyond that, government is wasteful. If we just supply more money, they will use as much as they are given … and more.

IMO - EVERYBODY should pay some taxes, rich or poor. It is a moral duty to pay taxes. I don’t like people who don’t do their share. As far as I am concerned both the idle rich and the idle poor suck.

I feel we should help people who work to make a contribution. Our basic humanity requires us to help our fellow man at a basic level. But there is no moral reason to equalize outcomes.

Posted by: Christine at February 25, 2010 8:32 PM
Comment #296263

The argument that the poorest segment of the population pays no taxes is nonsense. Just because they do not bear an income tax burden does not mean they don’t pay taxes. One of the main effects of the Reagan tax cuts is that fees for government services have increased drastically. Sales taxes, user fees and FICA taxes among others constitute a much larger percentage of the income of someone making 30,000 per year than those making 30,000,000 a year.

Furthermore, a progressive tax structure constitutes simple fairness. Consider an employee making $40K per year. He pays taxes based on his use of the commons. His use of the roads, the public education others tax payments provided for him and so on.
Next consider the owner of that company, he pays taxes based on the same benefits of society for himself, but he is also making money based on the labor of his employee. Typically that employee is making at least 10 times as much income for his company than he is taking home himself. So the employer is receiving more benefit from his employees use of the commons than the employee himself is. How then is it not appropriate for the employer to pay for a portion of the employees portion ot the commons as well as his own.

Progressive taxation is not ‘Redistribution of wealth’, it is simple fairness.

Posted by: Brian DuBuis at February 25, 2010 9:15 PM
Comment #296269

Christine and George

George said: “I’m as middle class as it gets and a smaller percentage of my pay goes to federal income tax thanks to Republicans (cross the board tax cuts) and Democrats (working tax credit, house buying credit, cash for clunkers, etc).”

Let’s see now, everyone gets credit except Obama who cut taxes for lower 95% of the income brackets. Are you not aware of Obama’s tax cuts or, does your prejudice prevent you from mentioning it in appreciation? I got my Obama tax cut. Did you not get yours? If not, you should appeal as there has been a clerical error by your tax preparer.

I guess there are many people who envy the rich. I certainly don’t. To get rich, I would have had to lead a very different life than I did, and I am very happy with the life I have led.

As I previously posted, the wealthy in a poll by a large majority don’t mind paying their taxes and even said they wouldn’t mind a tax increase if it would have a positive effect on the deficits and economic future.

But, the bottom line on taxes is very simple. Taxes have to come from those who are most able to pay them with the least consequences to the economy and societal stability. That is the bottom line. The wealthiest are going to pay more taxes, because taxes on personal wealth in the highest income brackets will have the least negative consequences, and the deficits and debt do matter, regardless of Dumb Dick Cheney’s utterances to the contrary.

That is the reality. The ideologues reject reality in order to hold onto their ideology. That’s fine. As long as, they pay their taxes.

Posted by: David R. Remer at February 26, 2010 12:26 AM
Comment #296270

No man should receive a dollar unless that dollar has been fairly earned. Every dollar received should represent a dollar’s worth of service rendered — not gambling in stocks, but service rendered. The really big fortune, the swollen fortune, by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and in another tax which is far more easily collected and far more effective — a graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate.

Teddy Roosevelt

No wonder we put his face on a mountain.

Posted by: bills at February 26, 2010 3:20 AM
Comment #296271

David,

I specifically mentioned three programs supported by Obama. Sorry if I gave the credit to the whole Democratic Party and not just to him:

Making Work Pay- I received an $800 tax Credit

House buyer’s credit (1st time and as expanded)- I’m not buying but I’m hoping to sell a house to someone who is.

Cash for Clunkers- Didn’t get in on that one.

Fact is that both parties play politics with the tax code that are not based on sound economics or even a hint of “fairness.”

Stephen-

The only logical conclusion of my argument is that I’m not envious of the rich as this article suggests I should be. Effective tax rates are a highly individual thing based on the millions of words in our tax code. Middle class? Buy a house and raise a couple of kids. You’ll be broke but at least your effective tax rate will be low (I’m living proof).

Posted by: George at February 26, 2010 6:25 AM
Comment #296272

George

“Fact is that both parties play politics with the tax code that are not based on sound economics or even a hint of “fairness.”

Any support for that statement? Is not encourging consumption during a serious recession an example of sound economics?

Posted by: bills at February 26, 2010 7:04 AM
Comment #296273

This is where the great divide is shown between progressives and conservatives.

My wife and I made in excess of $250K last year. We’re getting great tax benefits from the Republican policies of the Bush Era. Now that the kids are almost through college and considering the fact that we live a very moderate lifestyle (many people making half of what we make drive nicer cars and live in bigger, newer houses) we are socking the money away. We feel like we’ll need it to move to our remote, armed, walled, gated compound as we watch the increasing number of poor get poorer. They probably won’t stand around watching us eat and have fun forever.

I don’t understand how the supporters of the Republican stance on taxes can continue to think this will work. If you want lower taxes, don’t spend like banshees on a rampage. I know we’re doing it now since we’re trying to keep the economy from collapsing, but history will show that Democrats actually spend less than Republicans over the last few decades… not only that, historically, the market during Democratic administrations outperforms the markets during Republican rule.

When faced with reality, the Republicans do what they know best. Stand together. Stand firm. Lie about what is really happening.

Whatever you think… the Republican policy is not helping the economy and the numbers prove it.

Posted by: LibRick at February 26, 2010 7:50 AM
Comment #296274

Rich people never effectively pay any taxes, we debaters pay their taxes in higher fees and pricing, I can never understand why people don’t accept the reality of the situation. We are never going to repair our nation until we stop falling for this foolish class warfare tactic; a flat tax where every single American pays a little is the only fair thing to do. All Americans should be happy to pay some amount of taxes no matter what they make; we have a better nation when everyone has a stake in the game and we must remove this economic victim mentality.

“Socialism works great until you run out of the other guy’s money”

Posted by: MikeE at February 26, 2010 8:15 AM
Comment #296285


America has fallen into a deep rut. We have no guidence, no leadership and no purpose other than to work for the profiteers and make the whole world subserviant to those same profiteers.

America desperately needs a charismatic leader, a visionary with a new philosophy and a new plan for the future.

Stephen D. said that the Bush Administration gave $2.5 trillion in taxcuts.

With $2.5 trillion over ten to fifteen years, the American people could create the greatest and most profitable achievement in human history to date.

We the people of the United States could create the infrastructure that would supply the entire worlds demand for electrical power and do so in a way that would be less expensive than anyone else can do it.

We have no vision. We are trapped within corpocracy setting that is bleeding us dry, has buried us in a mountain of debt, both public and private, and which has determined that the American people are going to work for much less or not work at all.

We have a corporate owned media using our airways to propagandize us into believing that their way is the only way and anyother way is destruction for America.

And, we have a government that has sold it’s soul to the corpocracy for incumbentcy.

Posted by: jlw at February 26, 2010 3:41 PM
Comment #296287

bills-

An example? The union exemption from the proposed health care “Cadillac” tax.

Posted by: George at February 26, 2010 3:52 PM
Comment #296289

George said: “Fact is that both parties play politics with the tax code that are not based on sound economics or even a hint of “fairness.”

True, both sides use the tax issue to garner votes.

Fairness is in the eye of the individual tax payer. I think my tax share is fair. Warren Buffet thinks his tax share is too small, and therefore, unfair to his employees, who pay a higher percentage. Fairness is an entirely subjective measure, and not a basis for sound tax policy.

As for sound economics, any tax system which approximates maximum national benefit and sustainability or improvement of quality of life for the greatest number of citizens, is sound economics. An economic system is a method for allocating limited resources amidst infinite demand for those resources. Therefore, quality of life for the people of a nation is integral in the determination of whether an economic system is sound, or not. An economic system which promotes civil war, revolution, or rampant corruption and crime, is not a sound economic system.

Our economic system has been sound since Reconstruction (1865), until the Fall of 2008. It remains tentatively sound for a short period longer, until the national debt overwhelms the nation’s capacity to carry it.

Clearly, failure to address the Medicare/Medicaid and Soc. Sec. unfunded mandate deficits will result in an unsound economic system unable to avoid bankrupting the nation and most of its people.

Expecting such failure promotes hoarding. We are witnessing just such hoarding of wealth taking place in CEO and Corporate executive compensation packages. We see it in corporations moving overseas like Haliburton to the Middle East. We see it in the offshore Cayman Island bank accounts which dodge U.S. taxation. Such hoarding behavior is exacerbating the challenges and threat to our economic system.

We are creating an unsound economic system unable to sustain itself. That much, I think we can agree upon and for which, the evidence is clear. Bernanke testified this week that our current fiscal condition projected forward is unsustainable. Driving down long term health care costs for individuals and the government is job 1, as far as our economic system is concerned. Raising taxes to make up the difference in growing debt is job 2.

As a simple matter of fact, Republicans are opposing both of these measures to put our economic system back on a healthy footing.

Posted by: David R. Remer at February 26, 2010 4:31 PM
Comment #296295

DR writes that the R’s are opposing driving down long term health care costs. Not true, they just approach it differently than the D’s. The D’s want to drive down costs by spending a trillion or so. R’s want to fix the system as a whole.

As for “raising taxes to make up the difference in growing debt”, that is simply the dog chasing his tail. As taxes increase the ecomomy shrinks and fewer taxes are collected. With a spendthrift congress we will never match revenue with spending. We need less government, less spending and less regulation to grow our ecomony with real jobs for real people. Taking more money in taxes from people with real jobs to give to fund make work jobs is silly.

Posted by: Royal Flush at February 26, 2010 7:30 PM
Comment #296341

George
The justification for the union temporary cut out is that union emplyees are subject to contract. If a non-union worker or employer wants to change the terms of employment benefits they can do it tommorrow. Labor under contract does not have that flexibilty. The cut out is temporary to give time for current contracts time to expire and be renogiated.This is not at all unreasonable. Perhaps the HC benefit frills will be traded off for more wages,pension etc. The reason for the tax on “cadillac” plans is as much to discourage overuse of the HC system as to raise funds. This propoal was put forward originally by John MacCain. I do not like the tax much but allowing time for renogtiation does not quaify as an example of what we were talking of.

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