February 24, 2006
Don't Get Rolled by Tax Cuts for the Rich
By Froma
Harrop
A week's vacation
in Cancun does not make one a member of the leisure class. Likewise,
owning a few shares of stock is no ticket into anything Wall Street
would remotely regard as the investing class. But the Bush administration
would like to convince working folk that they are in the club.
Its motives are simple.
Conservatives have been remodeling the tax code to move the burden
off investment income and onto the earnings that people sweat
for. The more Americans fancy themselves players in the stock
market, the easier it will be to sell them on tax breaks for investors.
Right now, the administration is pitching an extension of the
15-percent tax rate on capital gains and dividends.
Thus, we have Treasury
Secretary John Snow asserting that the "typical" investor
is "a middle-class person saving for retirement with a household
income of about $65,000."
Snow's number is
no doubt correct, in a sleazy technical way. But lest you think
that lenient treatment for capital gains and dividends constitutes
the people's tax cut, consider these other numbers, compiled by
the Center on Budget and Policy Priorities:
-- Only half of all
American households have any investment in the stock market. And
nearly two-fifths of the stocks they hold are in 401(k) plans,
IRAs or other investments that are already tax-preferred.
-- Only 17 percent
of households in the bottom 60 percent of income own any taxable
stock. The average stock portfolio for this group is $52,000.
The average holding for the top 1 percent of households is $2
million.
-- Over half -- 54
percent -- of all capital gains and dividends subject to taxes
go to households with annual incomes exceeding $1 million. And
over 78 percent go to households making over $200,000.
-- Only 12.5 percent
of households earning less than $100,000 received taxable dividend
income, and half as many made money from capital gains.
How little money
the typical American family actually has invested is eye-opening,
even in the Cadillac of tax-advantaged accounts, the 401(k). The
median balance in 401(k) accounts is now $15,000, according to
the Pension Rights Center. For people between 55 and 65, the median
is only $23,000.
Back to how Treasury
Secretary Snow gets his number: Many more families make $65,000
than $200,000, so that even if a far smaller proportion of them
own stocks, they can still be portrayed as "typical"
investors. And again, he skates past the size of their holdings.
Snow would have better
served the goddess of honesty had he simply divulged which groups
would most enjoy the extended investment-tax cuts. So we'll have
to do it for him: By 2009, 72 percent of the benefits will go
to households with incomes above $200,000.
Some ordinary folk
may respond to this with, "Yes, the rich are getting most
of the breaks, but why should I care?" Good question, but
there is an easy answer: Because someone has to bear the cost
of government. If people in the upper incomes are paying fewer
taxes, others have to pay more.
The consequences
of letting investment income off the hook have been hidden so
far, because rather than raise revenues the old-fashioned way
-- through adequate tax collections -- the administration has
been borrowing the dough. Eventually, the bills will have to be
paid, and guess who will be the payer, under the changed tax rules.
Not everyone has
been oblivious to these goings-on. Religious conservatives have
long smelled a rat. "People are not going to give the kind
of support necessary for tax reform that leaves the investor class
untaxed," Dr. Richard Land, of the Southern Baptist Convention,
has said. Note that he makes a distinction between "people"
and "the investor class."
In addition to trafficking
in misleading statistics, the administration practices the psychology
of salesmanship -- with special attention to the technique of
flattery. Guys with $18,000 in their IRAs must feel swell hearing
the president refer to them as members of "the investor class."
Who among us doesn't want to imagine that we're playing the same
game as Warren Buffett?
Let us part with
a warning to the "typical" investor making $65,000:
Feel flattered if you wish, but don't get rolled by tax cuts for
the rich.
Copyright
2006 Creators Syndicate
