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An Open Letter To Congress

Dear Senators and Representatives:

To claim 'the rich' are benefiting from the tax cuts is to buy into a fallacy. This fallacy has distracted us from the truth about what is taking place. This is not simply a 'rich vs. poor' issue. Though they are better off than many Americans, the richest third of the population believe they are paying too much in taxes and don't think they are making much economic progress. Most of them are correct on both counts.

After adjusting for inflation, the economy doubled between 1976 and 2000. The tide has indeed risen, however, the number of workers contributing to this economic growth has increase by 153%. The real growth per worker has been about 30%. 

By the year 2000, 93 million taxpayers were still earning less than $50,000 per year. Tax decreases were not consistent for all income ranges in the group, but, on average, their taxes had decreased by 10 percent. The decrease in taxes for this group cost the government $14 billion in lost revenue. Despite this tax decrease, the after-tax income for the group DECREASED by 5% compared to inflation adjusted 1976 dollars. The economic boats of the 72% of taxpayer in this under $50,000 income group were not helped by the rising tide of economic growth. 

Yet, we can't simply blame 'the rich'. The group whose income was between $50,000 and $500,000 were nearly 28% of the taxpayers. Their taxes have actually increased by about 2.5%, which has added about $14 billion to the government's revenue stream. Despite paying slightly more taxes, the group's after-tax income has increased by 29%. Their boat has risen modestly, but they could have done much better if they had gotten their promised tax cut.

So what happen to the tax cut for 'the rich' and the promised economic gain for the other 93 million taxpayers? Look to the group whose income was $1 million or more in 2000. Their taxes have decreased by about 44% since 1976. The after-tax income for this group has increased by 592%. Though this group made up less than one-fifth of one percent of the population, the decrease in taxes for this group cost the government $99 billion in lost revenue. The massive decrease in revenue has eaten up about half of total economic growth of the nation.

Would the country have been better off if the $99 billion in government revenue had been distributed to the 99.5% of taxpayers who make $500,000 or less each year instead of the super rich? Those in the $50,000 to $500,000 income group would have averaged a $1,500 tax cut, with the $200,000 to $500,000 group getting $6,857 each. Those in the $0 to $50,000 group would have averaged $214 with the $40,000 to $50,000 group getting $659 each. These 10-15% tax cuts to 99.5% of the population instead of a 44% tax cut for the riches 0.2% of the population would not only have been revenue neutral, there would have been money left over to begin addressing other problems. Such tax redistribution would certainly have stimulated the economy in 2000 and would do a fine job in today's sluggish economy.

Passing tax code revisions (such as capital gains, estate tax, and dividend tax repeal) skewed in favor of the super rich are going to catch up with the country. You are shrewd enough to know that such measures have and will continue to dramatically shift the tax burden away from the super rich. Increasing the long-term tax burden of other groups must make up any shortfall in revenues generated from one group. 

Giving the largest tax breaks to the super rich has done nothing but concentrate income into the hands of the privileged few. The top one-fifth of one percent of taxpayers got 3% of the nations income in 1976. By 2000 they were getting 13% of the income.

The 1990s were a decade of unparalleled economic growth. The record growth has provided cover for the dramatic shift in wealth to the super rich. Now that times are tough, the shift in tax burden will become increasingly apparent. I would hate to be on the wrong side of the tax issue once the 99.5% of Americans who have been harmed by the tax redistribution realize what you and your colleagues have allowed to happen.

There is an analysis of how two decades of tax cuts have affected Americans in each income range available at www.getrealontaxreform.info. Please take a look and get the facts you need to do right by your constituents.

Copyright 2003 by Stephen Rodnesky


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