George W. Bush's tax legacy lives on in the "fiscal
cliff" deal.
Who won the New Year’s
Eve budget standoff? In one sense, everyone scored a “victory.” The deal that
Congress eventually blessed includes scores of provisions. Most Americans
can point to at least one that works to their financial favor.
But the real winners
don’t come into focus until we step back from those specific details and take
in the big picture. President Barack Obama had originally insisted on a budget
deal that would raise $1.6 trillion in new revenue
over the next decade, with most of those tax dollars coming from Americans
making over $250,000 a year.
The final deal raises a bit over $600 billion in new revenue.
In other words, the final deal essentially saves America’s most affluent nearly
$1 trillion over what the White House initially sought.
That $1 trillion in tax savings, all by itself, would make America’s wealthiest the heftiest winners in the fiscal cliff showdown. But their victory goes beyond that trillion bucks.
Consider this: Even if
Congress had given Obama every tax increase on the rich he initially sought,
taxpayers in America’s top tax bracket would still be paying federal taxes at
less than half the rate top-bracket Americans faced in the 1950s under
President Dwight Eisenhower, a Republican.
The wealthiest
Americans, in effect, won this latest battle over who bears the federal tax
burden even before the battling began. But they also did mighty well after that
battling started.
Take the matter of
dividend income. Until 2003, dividends enjoyed no particular tax preference.
The federal government taxed that kind of income at the same rate as income
from wages and salaries.
The George W. Bush
years changed all that. He slashed the tax rate on dividends — the dollars that
corporations distribute to their shareholders — all the way down to 15 percent.
This dividend income flows overwhelmingly to America’s wealthy.
Rich Americans
expected this preferential treatment for dividends to end on December 31, 2012,
the date all the Bush tax cuts were supposed to expire. Top corporate
executives, anticipating that expiration, had the corporations they run rush to
post dividends before the year-end deadline.
Overall, in 2012′s
final quarter, major U.S. corporations announced more than $22 billion in
dividend payouts, more than triple the dividend payout these same corporations
distributed in the last quarter of 2011. Among the beneficiaries: Larry
Ellison, the CEO of software giant Oracle. Ellison personally pocketed one quarter
of Oracle’s $800 million dividend surge.
The early payout,
Ellison no doubt figured, would save him about $50 million in federal income
taxes, the difference between the Bush 15 percent preferential tax rate on
dividends and the tax rate he would face if the Bush preference expired on
January 1.
But the Bush
preferential dividend tax rate didn’t expire. The deal that Congress passed
keeps the preference in place. Ellison and his fellow billionaires will pay
only a 20 percent federal income tax on their dividends, not the 39.9 percent
the deal applies to other income over $450,000.
The same dynamic
played out with the budget deal’s treatment of the Bush-era estate tax cuts. In
fact, under the deal, America’s wealthy will be paying even less in estate
taxes than they paid in any year of George W.’s presidency.
The budget deal, in
short, makes permanent the most notorious Bush-era tax breaks for the rich.
Meanwhile, the deal extends President Obama’s tax credits for working families
only for five years.
That proved too hard a
pill for some members of Congress to swallow, among them Rep. Jim McDermott, a
Democrat from Washington State. He voted against the budget deal.
“This agreement,” he
explained, “locks in a tax structure that helps the wealthy more than the
middle class and only gives temporary relief to everyone else.”
The nation’s budget
dealing, lawmakers like McDermott believe, is only just beginning.
OtherWords columnist
Sam Pizzigati is an Institute for Policy Studies associate fellow. His latest
book is The Rich Don’t Always Win: The Forgotten Triumph over
Plutocracy that Created the American Middle Class. OtherWords.org
