Monday, April 17, 2006

Christmas in April: With the help of Bush administration tax policies, Santa helps those who help themselves

Now that the taxes are in (TurboTax "congratulated" us on having our e-file returns accepted by IRS and the State of Wisconsin), there's some time to read about the part tax policy plays in the growing economic inequality in this country. As the LA Times explains today, we basically have the flat tax that Malcolm Forbes used to rant about -- and which very much helps those who help themselves.
But as millions of Americans face the deadline for filing their federal tax returns, they are operating in something very close to the world Forbes and other flat-tax visionaries proposed. Without any fanfare or philosophical debate, millionaires and middle-class Americans now pay taxes at almost the same rates. Has leveling out federal income tax rates produced a cornucopia of financial benefits? The answer is probably yes — if you're a millionaire. And probably no — if you're almost anyone else. Flattened, and thus lower, tax rates have contributed to huge increases in the wealth of the wealthy, but so far most people haven't seen significant economic improvement.

"It's as if Santa Claus dropped bags of money down everybody's chimney," said Leonard E. Burman of the private Tax Policy Center. "Only he dropped extra-big bags in rich people's homes, and extra-small ones in smaller homes."

Though most pay at least somewhat less in taxes than they did a few years ago, the Federal Reserve Board, in its latest three-year examination of family finances, found that average family income fell by 2% between 2001 and 2004 after adjusting for inflation. In the previous three-year period, average family income grew by 17%.

Thanks to more credit card debt and borrowing against their homes, the 25% of Americans at the bottom of the wealth scale had negative net worth in 2004. On average, these families owed $1,400 more than their possessions were worth.
A growing number of the bottom 25% are actually bankrupt, but the law will no longer allow them to declare it. The ranks of the homeless are bound to grow -- which at least promises a form of equality. As Anatole France wrote, "The poor have to labour in the face of the majestic equality of the law, which forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread."

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