Mind the Gap

Paul McLeary

Amer­i­cans have had a long, uncer­tain his­to­ry with tax­a­tion. A full nation­al income tax wasn’t estab­lished until 1862, and it was declared uncon­sti­tu­tion­al by the Supreme Court 34 years lat­er. In 1913 the 16th Amend­ment to the Con­sti­tu­tion per­mit­ted the income tax to be made a per­ma­nent fix­ture in the U.S. tax system.

For years, tax­es gen­er­al­ly were aimed at the wealthy as a way to ensure a mea­sure of equal­i­ty, but in the sec­ond half of the 20th Cen­tu­ry this con­cept was turned on its head as the wealthy invent­ed schemes to exempt them­selves from these fed­er­al levies. As David Cay John­ston points out in Per­fect­ly Legal, this trend inten­si­fied in the last 30 years and Amer­i­can fam­i­lies and the mid­dle class have seen their aver­age income stag­nate as their tax bur­den has risen. At the same time the wealthy keep mak­ing more mon­ey while pay­ing less and less of their year­ly earn­ings to the gov­ern­ment. And it’s all done by the books.

John­ston fin­gers two cul­prits, the Social Secu­ri­ty tax and the Alter­nate Min­i­mum Tax, as the two most telling exam­ples of how the tax bur­den has shift­ed onto the shoul­ders of mid­dle-income Amer­i­cans. Social Secu­ri­ty has become, in recent years, the pri­ma­ry tax paid by most Amer­i­cans. The max­i­mum has climbed sharply, from $327 in 1970 to about $4,700 in 2003, while medi­an income for Amer­i­cans has climbed only from $36,573 to $40,330 between 1970 and 1999. The tax caps out at $87,000, mean­ing any­one earn­ing more pays the same rate. In oth­er words, a mar­ried cou­ple earn­ing a com­bined income of $87,000 pays the same amount of Social Secu­ri­ty tax as, oh, say, Bill Gates. Not a bad deal for Gates. 

Speak­ing of bad deals, many don’t fare bet­ter when it comes to the Alter­na­tive Min­i­mum Tax (AMT). Intro­duced in 1969 as a sep­a­rate tax sys­tem aimed at wealthy tax dodgers, it recal­cu­lates the val­ue of a taxpayer’s exemp­tions and deduc­tions, charg­ing what­ev­er is more. Unfor­tu­nate­ly, the tax doesn’t take into account increas­es in inter­est rates, so now many of those mak­ing between $50,000 and $100,000 are being added to the rolls of the AMT. About 3 mil­lion are expect­ed to get hit this year, and if the Bush tax cuts become per­ma­nent that num­ber will jump to more than 35 mil­lion by 2010. Fam­i­lies mak­ing between $50,000 and $100,000 will see their share of this tax jump from 3 cents per dol­lar to 21 cents per dol­lar over the next few years, while those mak­ing more than $1 mil­lion will see their share dip by 3 cents to 19 cents per dollar.

The irony here is that last year’s tax cut low­ered the tax rates on most cap­i­tal gains and div­i­dends to 15 per­cent, and tax­es paid on invest­ments are not sub­ject to the AMT. The upshot? The wealthy now get out of pay­ing this one, too. 

But I can throw fig­ures at you all day, and in the end the fact that last year the aver­age income of the country’s top 400 earn­ers was $174 mil­lion is just that — a fact. Over the past four years Bush poli­cies have slashed tax­es for the wealthy while stealth­ily stick­ing it to the mid­dle and upper-mid­dle class­es. As a New York Times reporter and Pulitzer Prize win­ner, John­ston knows how to dig up sources and lay out the facts, but keep­ing an engag­ing nar­ra­tive going for 300-plus pages is a dif­fer­ent sto­ry. The book is a pol­i­cy wonk’s dream, and there’s enough here to make you pull out your hair over the amount of graft and out­right cheat­ing going on in the open. But the rep­e­ti­tion of num­bers, data, charts (some of which may be a bit selec­tive in their sources), and news­pa­per-style prose becomes drea­ry after awhile, and the read­er longs for a break from the steady diet of bad news John­ston forces them to digest.

That said, Per­fect­ly Legal is impor­tant in a way that many oth­er screeds only wish to be, and, in an eas­i­ly per­fectible world, would serve as a ral­ly­ing cry for tax reform. The fleec­ing of the Amer­i­can tax­pay­er is an issue that cuts to the very heart of our democ­ra­cy, and deserves the sin­gle-mind­ed atten­tion of our great­est pol­i­cy­mak­ers. But the real­i­ty is that those in charge of mak­ing the changes are too busy court­ing the cor­po­ra­tions and wealthy indi­vid­u­als who ben­e­fit most from their anti-demo­c­ra­t­ic sleights of hand.

Paul McLeary reg­u­lar­ly reviews books for In These Times. For more go to his his Web site.
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