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Class
Warfare
January 14, 2003
By Eric Munoz
As a part of the $600 billion economic plan to stimulate
our economy, George W. Bush seeks to eliminate the income
taxes paid on the income from dividends. Why it is that income
derived from money lending is any more special than income
derived from being a waiter, a teacher or a policeman is beyond
me.
For example, according to the Detroit News, the five heirs
to the Wal-Mart fortune stand to save a combined $984 million
dollars on $2,500,000,000.00 in income. My mom, who works
at Wal-Mart, will be asked to pay 10% of her taxable income;
she makes just over $18,000 a year. Under this plan my mom
will pay a couple of hundred dollars in income taxes, the
five Walton heirs will not pay one cent of their $2.5 billion
in dividend income.
Of course, the administration has already developed its two
word defense for comparisons like the one above - "class warfare."
If it is considered class warfare to point out that this plan
would give the top 5% nearly half of this economic "stimulus"
package, I wonder what we should call the plan itself. We
already have a situation where the rich continue to get richer
while the poor and middle class continue to get poorer, as
Robert Reich recently pointed out in the LA Times, "at the
top is a regal class with more wealth and income than any
aristocracy has ever had." George Bush's plan would only exacerbate
that problem. According to the Institute on Taxation and Economic
Policy tax model, nearly half of the plan's benefits go to
the very, very well off and over three quarters goes to the
very well off: 32.4% to the top 1%, 47.6% to the top 5% and
77.3% to the top 20%. The rest of us, the bottom 80%, split
up the remaining 23% of the benefits.
But not only does this plan tilt heavily toward the rich,
it is also far from clear that it will be stimulate the economy
at all. Furthermore, the plan may cause more problems than
it claims to solve.
The administration will no doubt argue that the tax cuts
will lead to higher stock prices and more investment which
will lead to more jobs. There's only one problem. We do not
need anymore capital-we need consumption. The Federal Reserve
Board's monthly Capacity Utilization report shows that we
are operating at 75% of potential capacity. That means that
25% of factories and machines are not being used. What company
in their right mind would go out and buy more machines or
open new factories when it is not even using all of the ones
they have now?
There are also some serious potential impacts of the Bush
economic plan. The biggest impact will be felt by state and
local governments at a time when they are already facing a
combined $50 billion budget shortfall. First, many states
with income taxes follow federal guidelines, if the federal
government stops imposing income taxes on dividend income
most states will be forced to stop collecting these taxes
as well. Second, if stock prices do increase - that's a big
if, by the way - then local bonds will become less attractive
to investors, depriving local governments of yet another revenue
source.
The states will be forced to do one of two things: raise
taxes or cut services. Because of the increased security needs,
education mandates from the federal government and rising
health care costs, it will be next to impossible for state
governments to cut services. States will then be forced to
raise sales or income taxes. Sales taxes are inherently regressive,
meaning that the poor and middle classes pay a far greater
share of their income toward these taxes. States that already
collect income taxes may be forced to raise their rates; those
that do not may be forced to start collecting them.
The elimination of income taxes on dividend income will disproportionably
benefit the already well off at too great a cost. Deficits
have returned and the national debt is growing again. With
the war on terror and the looming war on Iraq, there is little
chance deficits will be replaced by surpluses. We cannot continue
to mount debt on our children and our grandchildren.
There's an old saying: "if you find yourself in a hole, stop
digging." Right now this country is in a hole, a big debt
hole that's only getting bigger. We need to decide, as a nation,
whether we want to get out of this mess or not.
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