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House GOP Delivers Tax Day Windfall for the Wealthy

April 15, 2011

If nothing else, House Budget Committee chairman Paul Ryan has unfortunate timing. On April Fool's Day 2009, Ryan rolled out the first incarnation of his Roadmap for America's Future, the document which served as the basis for the 2012 GOP budget proposal. Now on Tax Day 2011, House Republicans will pass that blueprint designed to deliver yet another a trillion dollar windfall for the wealthy.
In December, President Obama and Republican leaders reached a two-year, $800 billion tax cut compromise. But by keeping the Bush tax rates in place and slashing the estate tax through 2012, that deal produced a $140 billion payday for the richest taxpayers in America.
But today's vote by House Republicans makes that gilded-class payout look like chump change. The Bush tax cuts, which the Congressional Budget Office last year estimated would drain $3.8 trillion over 10 years ($700 billion of it to the top 2% of income earners), are made permanent. (While the estate tax paid by less than 0.2% of families is not mentioned, its elimination was a pillar of both the Roadmap and the GOP Pledge to America.) And as Michael Linden of the Center for American Progress explained, the cornucopia for the wealthy still wouldn't be empty. While the vague Ryan proposal omits any mention of the loopholes it claims to close, Linden warned, "Here's what we do know. Ryan's plan would":

Maintain the Bush tax cuts, and further, cut the top individual tax rate down to 25 percent from 35 percent;
Consolidate the current six tax brackets into some, unspecified, fewer number of brackets;
Keep overall revenue levels the same;
Pay for the enormous tax cut for the top by eliminating or curtailing some, unspecified, tax expenditures

The result is inevitably yet another huge payday for the gilded-class. While claiming to close existing loopholes in order to produce a "revenue neutral" result, Paul Ryan's brave new world would be a beautiful one for the rich and a dystopian nightmare for almost everyone else.
As the Center on Budget and Policy Priorities explained (see chart above), the savings from Ryan's draconian budget cuts (three quarters of which are extracted from the poor elderly) are almost completely offset by his $4.2 trillion in tax cuts. And as Matthew Yglesias explained last week, earlier analyses of the proposals in Ryan's Roadmap reveal that working Americans would have to pick up the tab left unpaid by upper-income households:

This is an important element of Ryan's original "roadmap" plan that's never gotten the attention it deserves. But according to a Center for Tax Justice analysis (PDF), even though Ryan features large aggregate tax cuts, ninety percent of Americans would actually pay higher taxes under his plan.
In other words, it wasn't just cuts in middle class benefits in order to cut taxes on the rich. It was cuts in middle class benefits and middle class tax hikes in order to cut taxes on the rich. It'll be interesting to see if the House Republicans formally introduce such a plan and if so how many people will vote for it.

If this all sounds hauntingly familiar, it should. When it comes to using the tax code to line the pockets of the wealthiest people in America, House Republicans simply want the next decade to look like the last one.
As it turns out, the Bush tax cuts helped produce both record income inequality and declining average household income even before the onset of the recession in late 2007.
In February 2004, President Bush proclaimed, "we cut taxes, which basically meant people had more money in their pocket." Of course, some people are more equal than others.
Reviewing the Census data, David Cay Johnston concluded that the Bush tax cuts which have already drained the Treasury of $2.3 trillion were a major contributor to the record U.S. income gap:

In only two of the eight Bush years, 2006 and 2007, were average incomes higher than in 2000, but the gains were highly concentrated at the top. Of the total increase in income in 2007 over that in 2005, nearly 30 percent went to taxpayers who made $1 million or more...
One of every eight dollars of the tax cuts went to the 1 in 1,000 taxpayers in the top tenth of 1 percent, the annual threshold for which was in the $2 million range throughout the last administration.

On the heels of the December agreement which delivered another $140 billion, two-year pay day to the gilded class, Republicans have once again called for making the Bush tax cuts permanent. In his GOP budget proposal, Paul Ryan went even further in calling for reducing the top tax rate to 25% while supposedly closing loopholes predictably left unspecified. But as Johnston documented, the top 2% of taxpayers have already reaped a bonanza:

The number of people reporting incomes of $200,000 or more but legally paying no federal income taxes skyrocketed in the second Bush term. A decade ago it was fewer than 1,500 taxpayers; in 2000 it was about 2,300. This high-income, tax-free group jumped to more than 11,000 in 2007 and then doubled in 2008 to more than 22,000.
In 2008 nearly 1 in every 200 high-income taxpayers paid no federal income tax, up from about 1 in 1,500 in 1998.
The share of high incomes that were untaxed increased more than sevenfold to one dollar of every $166.

As the Center for American Progress noted in 2004, "for the majority of Americans, the tax cuts meant very little," adding, "By next year, for instance, 88% of all Americans will receive $100 or less from the Administration's latest tax cuts."
But that's just the beginning of the story. As the CAP also reported, the Bush tax cuts delivered a third of their total benefits to the wealthiest 1% of Americans. And to be sure, their payday was staggering. The Center on Budget and Policy Priorities detailed that by 2007, millionaires on average pocketed $120,000 from the Bush tax cuts of 2001 and 2003. Those in the top 1% stashed an extra $45,000 a year. As a result, millionaires saw their after-tax incomes rise by 7.6%, while the gains for the middle quintile and bottom 20% of Americans were a paltry 2.3% and 0.4%, respectively.

And as the New York Times uncovered in 2006, the 2003 Bush dividend and capital gains tax cuts offered almost nothing to taxpayers earning below $100,000 a year. Instead, those windfalls reduced taxes "on incomes of more than $10 million by an average of about $500,000." As the Times explained in a shocking chart: "The top 2 percent of taxpayers, those making more than $200,000, received more than 70% of the increased tax savings from those cuts in investment income."

It's no wonder that between 2001 and 2007, the 400 richest taxpayers saw their incomes double to an average of $345 million even as their effective tax rate was virtually halved.
Now, if Paul Ryan and the House Republicans get their way, that dismal history will repeated.
Happy Tax Day, America.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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