As federal budget deficits head back into the stratosphere, most
congressional Democrats remain petrified about frontally attacking the Bush tax
cuts that are the central cause of the problem. Perhaps if they understood that
most of us already face a tax cut freeze they'd be more willing to fight to
extend such a freeze to the richest Americans, too.
By the richest Americans I mean people in the top 1 percent of the income
scale, where the average income is just more than $1 million. This year there are
1.3 million families and individuals in that bracket. By 2010, the top 1 percent
will likely have about 1.4 million taxpayers, averaging $1.5 million a year.
Every state has at least a few of these wealthy people, although most live in
just eight states: California, New York, Florida, Texas, New Jersey,
Pennsylvania, Illinois, and Michigan.
A new study by my group, Citizens for Tax Justice (CTJ), finds that from 2001
to 2010, the richest Americans are slated to pocket almost half a trillion
dollars from the Bush tax cuts enacted last year. The $477 billion in tax breaks
the Bush administration has targeted to this elite group will average $342,000
each over the decade.
By 2010, when (and if) the Bush tax reductions are fully in place, an
astonishing 52 percent of the total tax cuts will go to the richest 1 percent.
Their tax cut windfall in that year alone will average $85,000 each. Put another
way, of the estimated $234 billion in tax cuts scheduled for the year 2010, $121
billion will go to just 1.4 million taxpayers.
If the American people will just focus on their own enlightened, patriotic
self-interest, however, all this need not happen. The tax cuts for the rich are
not yet a done deal. To be sure, the rich have already received a hefty down
payment on their Bush tax cuts -- averaging just under $12,000 each this year.
But 80 percent of their share of the bounty is scheduled to come from tax changes
that won't take effect until after this year, mostly from items that phase
in after 2005.
Meanwhile, the vast majority of taxpayers have already received most of what
they'll get. For the four out of five families and individuals that make less
than $73,000 this year, three-quarters of the tax cuts -- averaging about $350
this year -- are already in place. Tax cuts for the 19 percent of taxpayers
making between $73,000 and $356,000 this year will grow a little over the next
four years but will dwindle thereafter (see addendum). By 2010, the tax cuts for
this group will be no bigger as a share of income than they are now.
In other words, for 99 percent of us the tax cuts are already mostly or fully
frozen. Only the very rich have a lot more to gain if future tax cut phase-ins
are allowed to continue. Everybody else, of course, has a lot to lose in the
reduced government services and bigger deficits that further tax cuts will
entail. How are we going to afford to defend our country and protect Social
Security, not to mention address pressing needs like prescription drugs for
seniors, if so much of our tax money is siphoned off in giveaways to the
Obviously we can't expect President Bush to repudiate tax breaks for what he
jovially calls his "base." But that's why we have elections. Freezing the tax
cuts for the wealthy ought to be a key political issue this year and in 2004.
Policy wonks may recall that when CTJ previously analyzed the Bush tax
cuts, we found that "only" 38 percent of the tax breaks were targeted to the top
1 percent -- a statistic cited ad nauseam by Al Gore. Why does that percentage
jump to more than half by 2010 in CTJ's new study? The answer was touched on in
my previous column: the exploding impact of the individual "alternative tax."
CTJ's earlier analyses measured the distribution of the Bush tax program as if
each element were "fully effective" (and we presented our results in 2001
dollars). That meant we counted the bill's limited alternative-tax relief, even
though that is oddly scheduled to expire after 2004. But in our latest effort we
analyzed the bill's specific effects in each year from 2001 to 2010, taking into
account that after 2004, the alternative-tax relief disappears.
Our new 2010 snapshot finds that two-thirds of the ostensible
Bush tax cuts for the 27 million taxpayers making between $100,000 and $500,000
will be wiped out by the alternative tax. That in turn makes the share of
the total tax cuts going to the truly rich -- who aren't affected much by the
alternative tax -- much larger.
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