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Financial Planning > Tax Planning

Taxes are Not the Problem

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The Census Bureau is reporting that poverty is increasing, income for the middle class is declining and fewer people than ever are covered for health care.

According to the bureau, the number of U.S. residents in employer-sponsored health care plans plunged 3.7% between 2008 and 2009, to below 170 million.

The bureau also tells us that since 2000, nearly 12 million people slipped from the middle class into poverty. In 2009, 43.5 million Americans were classified as impoverished–over 14% of all Americans.

The new Census figures also show the average American family earned $49,777 in 2009, down from $52,388 in 1999, when adjusted for inflation.

Meanwhile, the top 1% in income is getting over 17% of all after-tax income. According to a study from the University of California at Berkeley, that’s the highest proportion of total national income in the pockets of the top 1% since 1928.

Yet we are still hearing squawks for deregulation and tax cuts–mostly benefiting the affluent, of course–to stimulate the economy. Those same advocates are advising us to forget about raising the minimum wage or extending unemployment benefits. After all, we as a nation can’t pay for such comforts and tax cuts for the rich as well, can we?

The fact is, though, that the rich spend darned little on luxuries as a percentage of their total income. Much of their wealth goes to investments such as corporate stocks and into overseas bank accounts, shielded from the view of the IRS.

Yet households earning over $1 million would get a hand-out of $31 billion next year alone under the tax cut extension envisioned by some in Congress.

As the U.S. Census bureau data show, deregulation and tax cuts bring trickle-down squalor. The tired old twaddle that taxing the rich hurts jobs is absurd, in view of the utter failure of recent tax cuts. These have deprived our economy of wealth for everyone but the wealthy, helping to slice jobs and desiccate income.

If the chasm between rich and poor in the U.S. is not enough to get your goat, then maybe the gap between the rich and the middle class will.

Bush-era tax cuts gave Americans about $1.7 trillion in tax relief through 2008, according to data from the Congressional Budget Office (CBO). But the high-income households received by far most of that relief. The top 1% of households received cuts averaging $41,077, which increased their after-tax income an average of 5%. For the middle 20% in income, average tax cuts totaled a paltry $760, which boosted their after-tax income by a measly 2.4%.

According to the CBO study, the wealthiest households in 2007 paid 29.5% of their income in federal taxes, which actually fell from 33% of their income in 2000.

Admittedly, the gap between the rich and not-so-rich is not solely due to tax cuts. The growth of technology, losses of manufacturing jobs, the decline of labor unions and the globalization of markets also have been playing a part.

To counter such developments, we need to enact more economic stimuli, paid for by eliminating the avaricious income tax scalp job perpetrated on the American people earlier in the decade.

Tax increases do not stifle job creation. In fact, after tax increases enacted under Bill Clinton, the economy was still able to create millions of jobs–22 million, if we are to believe pronouncements from the Clinton administration. Far from being a burden on the economy, taxes spur growth in such areas as education, construction, health care and law enforcement.

Tax cuts, if used at all, must not be across the board. Tax breaks for non-affluent Americans should be paid for by eliminating the cuts that had been generously doled out to the rich. Any new breaks that do benefit the wealthy must be targeted at stimulating entrepreneurial activity and capital investment. Broad, unfocused reductions in levies on capital gains and dividends are not justified by the facts.

Let us put an end to the economic policies that give unrestricted rein to capital. Instead, give the middle and working classes the means to spend their way out of this miserable recession. They would soon start spending it on consumer goods, including life insurance and other financial products, which will stimulate the economy for everyone. At any rate, it seems unlikely they will be socking it away in corporate stocks and overseas bank accounts.


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