The Real Class War
Bush's new tax plan is a
to the very rich
by David Moberg
In These Times magazine,
In 1978, after the nation's biggest corporations
had ganged up to defeat a moderate, pro-union labor law reform
bill, then United Auto Workers President Douglas Fraser complained
about a "one-sided class war" being waged against workers
in the United States. In the past quarter-century, that war has
That's what makes President Bush's recent
comments particularly galling. Seeking to discredit his opponents
as closet Reds from the start, Bush warned that the opposition
would wage distasteful "class warfare" against his new
tax cut plan for the rich-sorry, that's the "Growth and Jobs
Plan to Strengthen the American Economy."
His statements deflected attention from
the real class war being waged by the tag team of big business
and hard-right conservatives. Despite their minor policy differences,
they have been united for decades on a campaign to shift income
from poor and working people to the wealthy, under such guises
as "competitiveness" or devolution of the federal government.
That may be harder to do this time. Under
the banner of boosting the economy and helping the unemployed,
the latest Bush initiative especially when combined with other
tax cuts waiting in the wings-is a blatant giveaway to the very
rich. As long-term public policy, it is fundamentally wrong-headed,
ignoring real needs for sustained economic health. It will also
be very costly in ways that ultimately will be paid for by cutting
useful govemment programs especially those that help the less
But to Bush and the people around him,
these are meaningless objections. They care only about serving
the interests of the rich, whatever the consequences. As an administration
that has raised cold cynical deceit to new levels of strategic
importance, they seem unconcerned about whether their policies
deliver what they promise.
All the policy talk is political packaging
to delude middle-class voters and the media. But after years of
failing to fight effectively, and often even joining the anti-govemment,
pro-rich juggernaut as a junior partner, the Democrats will have
a hard time making the class war two-sided, even if they want
to do so.
The House Democratic leadership did at
least offer a modest, reasonable stimulus plan that would have
quickly delivered money to the people who need it most (and who
would be most likely to spend it), thus spurring the economy without
creating long-term revenue losses and budget deficits. Their plan
would have expanded unemployment insurance beyond the needed but
narrow extension that passed Congress early in January. It also
would have provided $300 to every working person.
The Democratic plan implicitly recognizes
that states now face deficits of at least $60 billion in the next
fiscal year. Because they must balance their budgets, states have
already been cutting spending for public education, universities,
Medicaid, corrections and a broad range of social services, while
laying off workers. The Democrats would offer financial help for
states on programs like Medicaid and Homeland Security.
Although stimulus programs proposed by
the AFL-CIO an the Economic Policy Institute would go further
(more money for refunds and public spending, higher minimum wage),
the Democratic plan at least recognizes that the economy is not
out of the woods. Indeed, the specter of double-dip recession
an spiraling deflation still looms, despite the administration's
happy talk about recovery.
Bush's plan costs $674 billion over 10
years (and more like $900 billion once interest on increased debt
is included) and offer nothing to the states. It accelerates the
2001 tax cuts that provided small middle-income taxpayer benefits
but were heavily skewed to the rich. Worst, the bulk of the cost-$364
billion comes from eliminating taxes on stock dividends. Politically,
many may be bamboozled by the Bush rhetoric; economically, very
few will benefit.
Republicans calculate that a new majority
"investor class" will rally to their elimination of
"double taxation" of dividends (first as corporate profits,
then as investor income). But while more than half of Americans
own some stock, only a third own more than $5,000 worth. Also,
most of these "investors" hold stock indirectly, in
pensions or mutual funds, that are already tax-free (except when
they're paid out in retirement, when they will still be taxed
under Bush's ~... plan). The wealthiest 10 percent of the population
owns 85 percent of the taxable stocks and mutual funds (and the
top 1 percent owns 49 percent), according to New York University
. professor Edward Wolff.
What about that horrible "double
taxation"? It's an illusory issue. Consider the average wage-earner
whose paycheck has deductions for both income taxes and Social
Security/Medicare-. and who then pays sales taxes on nearly every
purchase on top of property taxes. Is that "quadruple taxation"?
In any case, as Dean Baker of the Center
for Economic and Policy Research argues, corporations are legally
distinct entities from shareholders, and there are privileges
and economic benefits that justify separate taxation. Furthermore,
according to Citizens for Tax Justice, just over half of corporate
profits were taxed in t002, as corporate income taxes declined
to only 1.5 percent of the gross domestic product, probably the
lowest level of all advanced industrial countries.
But the chutzpah-of-the-year award goes
to Bush administration officials floating the idea that the big
problem with America is that the poor don't pay enough taxes,
and the rich pay too much.
First of all, the United States is a low-tax
country-ranking 27th out of 30 in total taxes among the relatively
rich countries in the Organization for Economic Cooperation and
Development. Second, overall federal taxation, including Social
Security, is only moderately progressive and getting less so.
By 2010, according to Citizens for Tax Justice, even before the
new tax cuts, the top 1 percent will receive 19 percent of all
income but pay only 24 percent of federal taxes. Third, the burden
of govemment has shifted back on states and localities, whose
taxes are very regressive. A recent study by the Institute on
Taxation and Economic Policy showed that on average, after accounting
for federal offsets, the richest 1 percent pay only 5.2 percent
of their income on state and local taxes. A middle-income household
pays 9.6 percent, and the poorest-fifth of all families pays 11.4
Meanwhile, the richest 1 percent-with
an average annual income of more than $1 million-already will
get a half-trillion dollars over 10 years out of Bush's $1.3 trillion
tax cut in 2001, an average of $342,000 each, according to Citizens
for Tax Justice. As their breaks fully kick in, that 1 percent
will be getting 52 percent of the tax cuts. By accelerating this
change in Bush's new plan, the rich will get more sooner.
Despite the grotesquely misleading administration
claim that 92 million taxpayers would receive $1,083 "on
average" in 2003, here's the real story from Citizens for
Tax Justice: The top 1 percent will get more than $30,000 each
on average; a family at the median income level will get about
$289; and a family in the bottom fifth, making an average income
of $9,900 a year, will gain a big fat $6.
The real point of the plan, of course,
is to bring about this redistribution. The second aim is to further
shrink govemment. Running a deficit now makes economic sense.
The deficit would make more sense if tax cuts or refunds were
to go to low and middle-income families rather than the wealthy.
And since much of the stimulus from consumer spending dribbles
away to other countries through the huge trade deficit, it would
be smarter to boost immediate govemment spending (in addition
to the benefits of forestalling cutbacks at state and local levels).
But the long-term deficit that Bush would
create is another matter. While the economics debate is far from
settled, there's a good chance that long-term deficits will raise
interest rates slightly, increasing costs to govemment and dampening
economic growth. Elimination of the taxation of dividends almost
certainly will raise interest rates on tax-free state and municipal
bonds, costing states more than $4 billion a year, according to
the Center on Budget and Policy Priorities.
If the money creating a deficit were spent
on research, education, infrastructure and other productivity-enhancing
investments rather than giveaways to the rich, longer-term deficits
might be less of a problem. But the right learned a valuable lesson
from Reagan's deficits. Down the road, they can point to the deficits
as a reason to chop away at govemment. Since the most vulnerable
targets will be programs that help poor or working people, the
Bush tax cuts will then become doubly regressive and unjust.
Apologists often try to defend the Bush
plan by claiming it will boost investment in the long term. But
the problem with the economy now is overcapacity, and during the
recent boom businesses had little problem raising capital. The
long-term economic benefits, if any, will be swamped by negative
social and economic consequences, and the same amount of money
would be better spent-even from a purely economic perspective-on
health care, education, environmental protection, increased energy
efficiency and a wide range of other govemment policies.
More fundamentally, the debate on taxes
and government must be shifted. As legal philosophers Liam Murphy
and Thomas Nagel argue in their recent book The Myth of Ownership,
the money that any of us earns, whether as factory worker, corporate
executive or investor, reflects not just our own work, but a long
history of public investment, regulation and even taxation. The
public has a claim on part of that money not only because of their
contribution to private wealth, but because the public needs the
money to create the kind of society we want in the future.
That is also the message of a compelling
new book-Wealth and Our Commonwealth-by William H. Gates Sr. (Bill's
dad) and Chuck Collins attacking the repeal of the estate tax,
which Bush still hopes to make permanent. Rich people owe much
of their great fortune to the society in which they live, they
argue, and creation of greater inequality and perpetuation of
even larger inherited fortunes is a threat to American ideals
In the end, Bush isn't just waging war
against the working and middle class on behalf of the rich. He's
waging war against America. Where's the Homeland Security when
we need it?
Class War watch