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Hijacking the American Dream

Are we going to allow the American Dream to be hijacked by those among us who believe that the increasing consolidation of wealth and power into the hands of a tiny fraction of the population is best for America? Their relentless effort over the past twenty years to dismantle the progressive tax system is doing just that.

Perhaps they honestly believe the premise that a growing economy inevitably benefits everyone. They are fond of saying, "A rising tide raises all boats." While this sounds good in theory, the data proves otherwise. During the past twenty years, clever manipulation of the tax code has allowed the richest fraction of our population to siphon off the bulk of the gain as the economy has grown. While the economy has grown in real terms about 15% per worker from 1976 to 1997, only a fraction of the population have realized any income gain. In 1997, the top one-third of one percent of tax filers received 67% of the nation’s growth in personal income. By contrast, the 50% of tax filers with a 1997 AGI (adjusted gross income) between $20,000 and $100,000 had no gain to show for 20 years of hard work.

The increase in the share of the income of the top one-third of one percent has been meteoric. Their share rose from under 4% of total AGI in 1976 to over 12% in 1997. Popular wisdom would have us believe that such gains are merely the product of "uncontrollable market forces." Market forces are not the main reason. Rather, a privileged few have finagled massive tax cuts for themselves. While the majority of the American people received only 3% or less in tax relief, the richest in the top one percent averaged a 42% tax cut that same year. For this to be the net result of twenty years of "tax reform” speaks to an unfair — if not corrupt — legislative system.

Despite twenty years of tax cutting efforts, the amount of income taxes we pay as a percent of our adjusted gross income has gone up. The 1976 consolidated return published by the IRS pegged the average tax paid at 13.45% of AGI. Their 1997 figure was 14.71% of AGI. Every group did not share this overall increase in taxes. Those with million dollar incomes did quite well. In 1976 people making over one million dollars were part of the 70% tax bracket. Between tax deductions and loopholes, their average tax as a percentage of AGI was about 50%. By 1997 the multimillionaires were part of the 39.6% tax bracket. Their tax as a percentage of AGI had plummeted to less than 29%. This represents a 42% decrease at a time when most people's taxes had gone up! The income in 1997 for this group of multimillionaires was over $423 BILLION dollars. Having the amount of taxes they paid drop 42% significantly affected the budget.

To put this into perspective, the 92 billion dollars worth of tax cuts bestowed upon this privileged top one-eighth of one percent equaled more than 12% of the 731 billion dollars in income tax revenues collected in 1997. If the people making over one million dollars in 1997 had paid according to the 1976 tax rules, the government would have had an additional 92 billion in revenue. Rather than use this money to create bigger government, the taxes of every other American could have been reduced by over 15%. Those with a multimillion-dollar annual income would have had to scrap by on only $500,000 per million dollars they earned. Any who found such an ordeal unbearable could find many willing to trade places with them among the more than 99.75% of Americans who don't fall into that income bracket.

Rather than cut the taxes of all other Americans by 15%, the politicians heaped the tax breaks on those who needed relief the least. In 1997, the top group of 144,000 multimillionaires averaged about $637,000 tax savings each over what they would have paid under the 1976 rules. 1997 is the most recent year that the government has provided complete statistics. Since by then, the top one-eighth of one percent of the population was already getting over 36% of their income from capital gains sheltered investments like the stock market, we can be certain that the bull market of the past few years has provided them with an even greater percentage of tax savings.

To confuse the issue, certain politicians have framed the controversy as a debate between big government and cutting taxes. The real question has always been whose taxes should we be cutting first. While we weren't paying attention, the wealthy made certain his or her taxes were cut more than everyone else’s. These tax cuts could have been handled differently. I can hear the little piggies squeal, "You are soaking the rich." On the contrary, the facts document how the mega-rich have not been content with the gains won through their exalted position in the capitalist system. Beginning with Reaganomics, the greediest among them have used their influence to soak the majority by muscling their way to the front of the tax cut line at every turn. I suggest that the majority undo the damage done by these policies. The privileged few in the top one-third of one percent income group benefit most from the bounty of our economic system. Why should this group also benefit from the lion's share of tax cuts as well? What besides their greed and unfair influence on the political process gives them the right to first seat at the table?

How do they get away with this behavior?  I document much of the process in my book, A Broken Covenant: The Rape of the American Middle Class. Basically, the reason they have been able to slip their legislative agenda past us is that most of us are easily tricked by reasonable sounding numbers. For instance, what if someone offered to work for you 6 days a week under a contract that stipulated his salary would be only one penny for the first workday of each month, then double each successive workday until the end of the month. They might point out truthfully that under the plan you would only be paying them a total of $40.95 for the first two weeks of work every month. At first glance it sounds like a ‘can’t lose’ proposition, doesn’t it?

Yes, it would be a ‘can’t lose’ deal for the person to whom you agreed to pay under those terms. Look at the chart below and you will realize the magnitude of what you would allow to happen by falling for that con.
Day of Month Salary for Day Total Salary Paid
Monday $0.01 $0.01
Tuesday            $0.02 $0.03
Wednesday $0.04 $0.07
Thursday $0.08 $0.15
Friday $0.16 $0.31
Saturday $0.32 $0.63
Sunday ----------- ----------
Monday $0.64 $1.27
Tuesday            $1.28 $2.55
Wednesday $2.56 $5.11
Thursday $5.12 $10.23
Friday $10.24 $20.47
Saturday $20.48 $40.95     <-------- Salary for two weeks work
Sunday ----------- ----------
Monday $40.96 $81.91
Tuesday            $81.92 $163.83
Wednesday $163.84 $327.67
Thursday $327.68 $655.35
Friday $655.36 $1,310.71
Saturday $1,310.72 $2,621.43
Sunday ----------- ----------
Monday $2,621.44 $5,242.87
Tuesday            $5,242.88 $10,485.75
Wednesday $10,485.76 $20,971.51
Thursday $20,971.52 $41,943.03
Friday $41,943.04 $83,886.07
Saturday $83,886.08 $167,772.15     <-------- Salary for 28 day month
Sunday ----------- ----------
Monday $167,772.16 $335,544,31
Tuesday           $335,544,32 $671,088.63
Wednesday $671,088.64 $1,342,177.27     <------ Salary for 31 day month

As you can see from the chart above, the final weeks of each month are very costly. Depending upon the number of days in the month, you would owe this person between $167,000 and $1,342,000 for a month’s work. As the old saying goes, "The devils in the details," yet we tend to make our decisions based on superficial information in this age of the sound bite. What if you had signed a binding contract with this guy without first learning the long-term implications? We, as a nation, are signing contracts with similarly devastating long-term consequences.

There are people who devote their lives to figuring out reasonable sounding ways to take unreasonable advantage of the rest of us. They definitely don’t want us to know what they are doing so they hide behind catchy sound bites and bureaucratic obscuration. As you saw in the above example, once you see the details clearly laid out, it is difficult for them to pull the wool over your eyes. In fact, once you see what they have been pulling, you can turn the tables on them and recoup your losses.

Ultimately, the decision whether to spend a little time and money getting up to speed rests with you. Certain individuals are spending millions funding "spontaneous grass-roots movements" with noble sounding slogans. In most cases, the legislation they are advocating will give more tax breaks to the richest few and cost the rest of us a great deal of money. Those of you who claim that you are too busy making a living to take a few minutes and learn the facts are playing right into their hands. This type of apathy is allowing the greediest among the mega-rich to have the laws changed to steadily shift the tax burden away from them and onto your backs. With each passing year, their greed gets greater and their haul increases. Their agenda might be shortsighted and selfish, but it will continue to be legal unless you commit the time to learn the facts and take a stand.

If we don’t act now, it may soon be too late to reverse this travesty. For instance, let's look at the Armey flat tax proposal. This piece of legislative misdirection is touted as a plan to insure that everyone pays the same percentage of income tax, in this country where over eighty percent of the people are trying to raise families on less than $85,000 per year. The fact that a legislator can suggest with a straight face that people making millions of dollars per year should pay the same percentage of tax as those raising families on $85,000 or less is a sign of how confused the debate has gotten. But the flat tax bill removes a significant portion of the income sources of the superrich from the definition of taxable income. If the bill were passed, the mega-rich would be paying a significantly lower percentage of tax on total income than the middle class. Fearing that the American people might come to their senses once the bill was passed, the flat taxer added a provision that would require a super majority to change the law. This would make it nearly impossible to undo once passed.

Only governmental intervention can redress the anomalies in our capitalist system, which allow a few to gain billions, while the majority have few reserves. There is nothing stopping Americans from demanding that Congress rewrite the tax laws to prevent the mega-rich from continuing to hog the wealth. We can still have a healthy, economic system without a fraction of the population hoarding obscene amounts of society's resources. Twenty years of these unprecedented tax cuts have allowed the richest 1% to double their share of wealth to over 40% of all personal wealth in America. The figure represents nearly twice the percentage of wealth held by the richest 1% in other democratic nations throughout the world. This concentration of wealth into such a few hands has put the long-term viability of our middle class, and in turn, our democracy into question. Now Congress is considering eliminating the only vehicle we have in place to redress this unreasonable concentration of wealth — the estate tax law. This tax cut will accelerate the concentration of wealth into the hands of the mega-rich, while increasing the amount of income taxes paid by most Americans.

Don’t let Congress keep suckering us by saying one thing and doing another! The current projected budget surplus will provide Congress with more opportunities to cut taxes. Based upon their track record over the past twenty years, which group of taxpayers do you think is going to haul away the bulk of this windfall? Cutting taxes is a wonderful idea. However, the tax cuts must not continue to be funneled to the richest at the expense of the majority of hardworking American families by a band of con artist masquerading as caring, fiscally responsible legislators.

Copyright © 2000 by Stephen Rodnesky

      

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