Of Life and Taxes

We have a duty as well as an obligation to our own self-interest as middle class American citizens to strengthen the progressive Federal Income Tax system. I know, that is a blasphemous statement in this political climate of low taxation and small government. It is sacrilegious to even suggest that giving our government a portion of our salaries can be a benefit to us. Paying our income tax was once perceived as a civic duty. It was like paying annual dues to the club name the United States of America, when the tax system was structured in a way that was much more equitable to the average citizen than it is today. The Federal Income Tax has been under siege for the past 25 years and has been perverted into the appearance of an extortion racket by the propaganda machine of America’s wealthy, the U.S. Congress. It has been blamed for causing stagnate economies and poorly performing stock markets. The Republican Party is the primary perpetrator of this attack. They say that the people who make the money know how best to spend it and that the government should just get out of their way and let them keep their hard earned cash. On the surface this sound great. Who among us enjoys paying taxes? I certainly don’t.

There are many forms of taxation in the U.S.A. We have to pay taxes on the purchase of gasoline, tobacco, alcohol, meals in restaurants, pet foods, automobiles, furniture, real estate; just about everything we buy or own. These taxes, as painful as they are to pay, are not what come to mind when a politician or a member of the media mentions the “T” word. When we hear the word “tax” we immediately think of the money deducted from our paycheck, the income tax.

The income tax is the form of taxation that is most hated by those of the right wing or conservative persuasion. They have been mounting an incessant barrage on this tax for almost a century. Ronald Reagan was elected president in 1979 mainly for his evangelical belief in lower taxes and small government. His mantra of low taxes has been chanted tirelessly by the right wing ever since. Income tax reduction is so ingrained in the American mindset that even Democrats have and are running on a platform of tax cuts.

Why is the income tax the target of so much hand wringing? Why isn’t the sales tax or the gasoline tax attacked with this much vigor? The answer is in the tax law. When the income tax was first enacted into law in 1862, signed by a Republican no less, it was made progressive. That means that the more income one makes, a higher percentage of that income is taxed. The theory behind this is that over a certain amount, income becomes more disposable. It is no longer needed to meet the expenses of even the highest of living standards so it should be taxed at a higher rate. The rich need to pay more so that those in the middle and lower classes are not overly burdened by high taxes. In effect, we are all subsidized by the wealthiest in our society. At least that was how it worked until recently.

According to Table A in the U.S. Census Bureau’s “Statistics of Income Bulletin” (publication 1136), the highest marginal tax rate, the rate at which the wealthiest among us pay, has steadily risen since the late 1800s. It took a precipitous dip in the 1920’s from a high of 70% for over $1,000,000 of income to a low of 25% by 1925 (guess which party had control of congress and the presidency at that time?). Then the Great Depression hit. The Republicans were voted out of office and the Democrats raised the highest rates to 65% for over $1,000,000 by 1935. This helped save our country. The wealthy were perceived as greedy do-nothings at the height of the depression and a socialist revolution was brewing. Instituting, once again, a steeply graduated tax structure helped support the government spending that provided jobs for the unemployed and suppressed the pending revolution.

The progressive tax structure is again in a free fall. At its height, the wealthy in the 1950’s were paying 91% of their income over $400,000 per year in tax. In 2003 the top rate was 35% for income over $311,000. That is a lot of disposable income remaining in the bank accounts of our wealthy citizens. On the other hand, the middle class tax rates hardly budged during my working life. When you compare the median household income from U.S. Census Bureau statistics from the mid 1970’s to the present with the income tax rates for the “married filing jointly” schedule for each year, you will find that the middle class income tax rates decreased by only 15% (from 32% in 1977 to 27% in 2003) while the highest tax bracket dropped by 50% (from 70% in 1977 to 35% in 2003). Also, the number of brackets within the tax rate schedules, during the same time period, dropped from 25 to 6. The graduated tax structure was systematically loped off from the top through the past 30 years and the middle class is being squeezed as a consequence.

The middle class taxpayer is now paying a proportionally higher percentage of the federal budget. The wealthy get to keep the money they would have had to donate to our society and invest it to make even more money they will be able to keep. You may be saying, “This is a good thing. When more money is invested in businesses they produce more jobs.” But have more jobs been created? The unemployment rate is as high as it has been in about ten years. The money is leaving the country along with our jobs. Investment capital is going to build plants in China, India and other developing countries. Wealth is being exported; made possible by tax cuts for the rich. That is not the only consequence of a less progressive income tax.

Housing prices have skyrocketed, fueled by the high-end houses being scoffed up by the well to do with their surplus supply of cash and the competition for expensive homes. According to U.S. Census Bureau data, the average cost of purchasing a house doubled in the past 20 years while the inflation rate averaged only 3 ¼ %. The rise in demand for high-end homes helped push purchase prices up 30 times the rate of inflation. If you need $1,000,000 to buy a house by the shore then the next level home will be worth that much more. The trickle down effect is making homes unaffordable for first time buyers. This is one of Reagan’s legacies, the real trickle down theory. The same is true for buying into businesses or franchises. The middle class is being elbowed out of our opportunity for the American dream.

The real estate tax crisis, faced by most cities and towns, is a direct consequence of rising home prices due to the cash windfalls for the rich. The dramatic rise in the value of houses translates to higher real estate taxes. However, our wages have not risen any way near enough to match. As a result, we are paying a higher percentage of our income in this local tax. This particularly hurts the retired elderly. Most are on a fixed income so the rise in property taxes can be devastating. All they can do is lower their standard of living in order to pay their taxes. The flattening of the graduated income tax and all of its side effects are widening the gap between the rich and the middle class.

A progressive income tax is the only fair and democratic tax. It requires that those that can afford to pay, carry a heavier burden than those that cannot. Flat taxes on real estate, sales and gasoline are regressive, which means that Bill Gates pays the same tax as the gal working for minimum wage at the corner convenience store. A regressive tax is a reverse progressive tax. The lower and middle class majority is paying a higher percentage of their income in these taxes compared to the wealthy. We will soon hear a call to raise these regressive taxes to pay for the loss of revenue once subsidized by federal and state income taxes. At the same time, the Republicans will demand a further flattening of income tax rate scales. The increased reliance on regressive taxes to pay for our necessities such as road and bridge maintenance, hospitals and health care and schools will serve to further widen the wealth gap.

The tax crisis is pushing local governments to tap into revenue streams that, until recently, were thought abhorrent. The proliferation of gambling and the pending partnerships with our governments is a direct result of the loss of revenues from the wealthy. There is legislation for legalizing slot machines or casino gambling in almost every state legislature in the country, not to mention the expansion of state run lotteries. There are actually radio advertisements in my state that implies that it is our civic duty to play the lottery to help pay for roads and schools. What will come next, drugs and prostitution? The flattening of the income tax is pushing us to collect revenues from the lowest our society has to offer. Our elected officials will look like mafia soldiers shaking down street gangs for a “piece of the action”.

It also can be argued that a steeply graduated income tax would have prevented the “get extremely rich quick” schemes of the late 90’s. Would Ken Lay or Dennis Kozlowski have risked so much if they knew they had to pay 90% of their second 100 million dollars in income tax? By the same token, there is no evidence that a progressive tax stifles growth due to the loss of motivation to honestly make big money. The decades of the 1950s and 1960s had the highest tax rates for the upper income levels in our history and yet our economy experienced one of its greatest growth spurts. A steeply graduated tax system can and has helped propel our economy into unprecedented prosperity, while at the same time, provided us with the revenue to improve our infrastructure for continued growth. Without the money to sustain our transportation systems, power and water supplies and schools our standard of living will plummet.

The conservative compulsion to flatten income tax rates is unethical and un-American. We have been a culture of fair play but now we are on the road of greed and selfishness. In the past, we have looked to the government to help level the playing field, to allow the middle class majority to keep a few extra dollars in their bank accounts to help with the expenses of life. But now, neo-conservative politicians are turning the tables on us. They would have us believe that it is the progressive tax that is unfair. We shouldn’t be asking the wealthy to help us pay for our society even though they benefited a great deal from middle class labor and investments. They say that our culture and economy will work best when we allow the wealthy to keep their money and abandon their obligations to kick in a proportionally higher amount to the general fund of the United States. They spout the virtues of the trickle down theory as if we were all dogs sitting by the table waiting for some of our master’s scraps to fall to the floor.

A progressive income tax system is like glue holding our society together. A thing is not valuable unless people are willing to pay for it. By demonizing taxes, conservatives are devaluing our nation. By providing the wealthy with deep discounts for membership to our great society, they are sending a message that our country is not worth any sacrifice. Taxes provide our nation with the means to care for our fellow citizens and maintain the infrastructure to support commerce, education, our high standard of living and our national identity. Our society, as we know it, will fall apart without the revenue from a progressive income tax program. It costs money to maintain a country as broad and diverse as ours and we must ask, no require, that those among us who can most afford it, help those of us who are just scraping by. Without that connection, without the understanding that we are all participants in this democracy, that out of many there is one, we will inevitably break down into a two class culture where there are those who can more than afford to house, educate and provide for their children and those that have no hope for a better future. The American dream will morph into a nightmare of sustained survival for the vast majority of Americans.



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