The REAL Income Redistribution From the Middle Class to the Top

Taxing Matters by Robert L. Borosage
Tax Day. Fox News is flogging Astroturf "tea parties" underwritten by corporate lobbyists, while its pundits warn that raising the top income tax rate to the level it was under Bill Clinton constitutes "socialism." The Wall Street Journal editorializes about the evils of the estate tax. Ari Fleischer, Daddy Bush's old flack, is trotted out to complain that "redistribution of income" through the tax code "is getting out of hand."
Really? Here's the grim reality. Since 1980, when the conservative era began, inequality has reached Gilded Age extremes - while top end tax rates have been cut. The wealthiest few captured ever more of the nation's income while successfully lowering their tax rates.

And worse - this is still going on. This month, every Republican Senator - joined bizarrely by 10 Democrats - pushed for yet another tax break for the super-rich - those with fortunes over $7 million. Apparently worried that the heirs of the Paris Hilton class might not be able to keep the yacht clubs humming, Republican Senators voted in lockstep to direct the Congress to raise the full exemption of estates from $7 to $10 million per couple, and drop the top rate from 45% to 35%. Over a decade when fully in effect, this represents a bauble worth about $90 billion to the 1 in 400 estates (one-fourth of one percent) that reach that level.
Fleischer would suggest this is a small, but inadequate step to curb the confiscatory redistribution of the tax code. But he's peddling bull.

In 1980, as "Gilded Age Taxation," a study by the Institute for America's Future shows, the richest 1% of Americans captured fully 7.7% of the nation's after-tax income. The middle sixty percent captured about 50.9%. By 2006, the latest CBO figures show the opulent 1% -- making an average $1.3 million -- captured a staggering 16.3% of the nation's income after all that tax code redistribution. While the middle sixty percent garnered only 44.1%. If class war is being waged, the rich are on the march.

The Institute for Policy Studies details the staggering contrast to the Eisenhower years. In 1955, the top 400 taxpayers averaged about $12.3 million in income (2006 dollars) and paid, after exploiting every loophole imaginable, 51.2% of that in federal income tax. A half century later, the richest 400 average a breath-taking $263.3 million in income each, and pay a mere 17.2% of that in federal income taxes. (A lower tax rate than paid by most of their secretaries).

If those 400 taxpayers had paid at the same rate in 2006 as a half century earlier, the federal treasury would have collected $35.9 billion more in revenue, or enough to double the energy and transportation budget combined. No wonder Ike, clearly a stealth "socialist", could afford to build the interstate transport system.

So why do Republican Senators en mass and 10 wayward Democrats - Max Baucus, Evan Bayh, Maria Cantwell, Mary Landrieu, Blanche Lincoln, Patty Murray, Bill Nelson, Ben Nelson and Jon Testor - think the wealthiest one-fourth of one percent of Americans need another tax break? They wax eloquent about saving family farms and small businesses. But upon sober review, the New York Times editorial board provided a tempered evaluation of the argument: "That is swill." Opponents of the estate tax haven't been able to dig up a family that was forced to liquidate its farm or business due to the tax because these folks simply do not exist.
The sad reality is that conservative dominance over the last decades has had profound effects. One of these is that income inequality grew to Gilded Age extremes, while top end tax rates were slashed. Fleischer is right. We did witness a lot of redistribution. But it went from the middle class to the very top, not the other way around.

(Incidentally the new tax break isn't a done deal. A conference committee will decide its fate in the next week or two. You might want to call or write Republican Senators or the wayward Democratic 10 and tell them enough already.)