Rich
getting richer via tax policies
By Gerald
Scorse, Progressive Charlestown guest columnist
“I’ve been rich and I’ve been poor. Believe me, rich is
better.” This famous quote
has always been true, but never as true as today. After decades of dominance by
the right, here’s the 2019 version:
“I’ve been rich and I’ve been poor. Believe me, rich is
insanely better.”
The insanity stems from tax policies. Marginal income tax
rates plunged starting in the 1980s,
hitting their modern-day lows under President George W. Bush. After rising
modestly during the Obama Administration, they fell again under President
Trump.
Rate cuts generate only part of the current bonanza. Tax
breaks passed by various Congresses account for the rest, hugely increasing the
billions that flow to the haves.
So, insanely, taxes really are making the rich richer. With inequality
soaring, they’re widening the income gap instead of making it smaller.
All taxpayers get at least modest breaks, but the big money
goes to those who need it the least: income is redistributed upward, with
disproportionate shares going to the top percentiles.
The most blatant example literally “wills” capital gains (and
capital gains taxes) away. With the stroke of a pen, when assets such as real
estate and equities are passed along to heirs, all unrealized capital gains are
wiped out. The assets are revalued and given a new basis price, their worth at
the time of transfer.
It’s called a step-up in basis, and it can happen again and again. As a result, wealth can pass untaxed from one generation to the next. (Retirement accounts get no such break, but non-retirement holdings do—and guess who has those.)
In another fiscal favor to the rich, income from wealth is
taxed at a lower marginal rate than income from work. The federal rate on
long-term capital gains and dividends is 20 percent, well under the 37 percent
top rate on income from wages and salaries. The highest earners do pay an
Obama-era surcharge of 3.8 percent on investment income; even so, they still
save more than a third compared to the tax on income from labor.
This break in particular acts as rocket fuel for income inequality.
With income from capital becoming an ever-greater share of total income, a
lower rate drives up the fortunes of wealthy Americans and leaves middle
America farther and farther behind.
Tax expert David Cay Johnston ran the Internal Revenue Service numbers.
From 1961 through 2013 (the latest year for which data is available), the 400
richest Americans saw their federal income taxes drop from 42.4 cents on the
dollar to 22.9 cents. For 2013, adjusted for inflation, that gave the top 400
an average $195.4 million in extra after-tax income. The vast majority of
Americans took home more dollars too: an average of $6,812.
It’s the ratio, Johnston wrote, “that may take your breath
away.” After more than 50 years of deliberate tax policy choices, here it is:
“For each dollar of increased after-tax income enjoyed by the vast majority in
2013, the top 400 enjoyed $28,684 more. That’s $28,684 to $1.”
The ratio can always go higher and probably already has; it
came before the Trump tax cut, which delivered its own special breaks to the
rich.
One of those more
than doubled the estate tax exemption, raising it from $5.5 million to $11.4
million for an unmarried person. A couple can shield twice that amount, or
$22.8 million.
It was a major anti-estate tax victory, but only the latest
in a streak going back to 2001: the
exemption back then topped out at $675,000, or $1.35 million for a couple.
Legislation passed in that year gradually raised the totals to $3.5 million/$7
million by 2009. Congress later upped those exemptions as well, and the 2017
law has raised them to new highs.
According to “death tax” propaganda, estate taxes amount to
double taxation of a lifetime’s hard-earned income. According to the facts,
“unrealized capital gains account for almost half of the fair market value of
estates.” Under the stepped-up basis (see paragraphs 7 and 8), those gains will
never be taxed, period.
Let’s end with an exclamation point. From 2014-2023, two tax breaks alone
will put the haves up by an estimated $1.984 trillion. Just from lower taxes on
capital gains and the stepped-up basis, those who need nothing will be up by
nearly $2 trillion.
That $2 trillion should be going to the common good, not to
the well-off. Congress can make it happen by ending tax breaks that do little
more than make the rich richer.
Gerald E. Scorse helped pass the bill requiring basis reporting for capital gains. He writes on taxes.
© 2019 Gerald E. Scorse
#This piece first appeared at www.nydailynews.com
