Taxes are Not the Problem

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.