Thursday, December 19, 2002


The Bush administration’s recently reported hope to remedy what they see as “a rising tax burden on the rich and a declining burden on the working poor and middle class,” by flattening tax rates and raising taxes on low wage earners, is as economically short-sighted as it is immoral.

The wealthiest 1% of earners pay the largest share of total income tax because they earn the largest share of total income, not because entry-level and other low wage workers are under-taxed.

In fact, the top 1% earns 38% of the nation’s total income – a larger share than the combined income of the entire bottom 40%. Yet, with payroll taxes included, they only pay 25% of total federal taxes (or, 36% with Social Security excluded).

Since their combined share of income is greater than earners in the bottom 40%, it is only logical that their combined share of income taxes paid to the government is also larger.

The reason why the share of total taxes paid by those at the top has increased in recent years is simple; their incomes have increased, spectacularly, while the incomes of those in the middle have stagnated, and those at the bottom end of the wage scale have declined.

The real, and rarely discussed, problem this country faces is increasing barriers to class mobility and personal security and wealth creation caused by wage stagnation and decline, especially at the entry level. And that problem will only be exacerbated by tax increases on mid and low wage earners.

Why? Because, in a broadly middle class society like ours has been, the lowest wage earners – “the working poor” -- are, in general, simply the youngest earners, at the beginning of their working life. And “the rich,” in general, are merely their elders who have had a lifetime to accumulate valuable experience and assets.

Males from twenty to thirty years of age, for instance, average wages less than half those of men in their peak earning years, between the ages of fifty and sixty. People 50 and older own 77% of all of the country’s financial assets as well, and 43% of all discretionary income is controlled by households with people who are older than 50.

This isn’t surprising. After all, it takes time to accumulate skills and experience that make one valuable in the workplace. And, it takes time, and years of investment, to accumulate assets that lead to wealth.

The fact is, broadly speaking, income disparities are most determined by age. And higher taxes on “the poor” really means higher taxes on the young -- those at the beginning of their economic life who have the least amount of disposable income, and yet, the greatest need to use the limited resources they do have to make significant personal investments in their, and their young families’, futures.

For them, a flat tax that increases their share of the tax burden will mean less money available for personal investments in education and training, establishing a home, investing in property, starting a business, educating children, preparing for retirement. And, therefore, less opportunity to enter the middle class, build assets and wealth, and contribute to the future wealth of the nation.

Wage stagnation, a less progressive tax system, and inflation in the basics of middle class prosperity – education, home ownership and health care -- as well as increasing job instability and less secure retirement benefits, have already had consequences for Baby Boomers just now moving into their peak earning years. They are expected to retire with less than half the personal net wealth of their parents’ generation -- a generation that, by the way, reaped the benefits of an extremely progressive tax system. That progressive system gave them a significant tax break, compared to their richer elders, in their youthful, wealth creating years, while still allowing for significant public investment – in everything from higher education to highways. They then, of course, in their years of greatest earnings, when the personal investments they made in their youth began to pay off, reaped the benefit of Reagan-era tax cuts.

Flattening the tax system even more than we already have, and raising taxes on the youngest, poorest earners, as the Bush administration is proposing, will have much worse consequences for the Baby Boomers’ children. That younger generation is starting out burdened by lower real wages at the entry level, greater debt, less job security, as well as higher education, housing and health care costs, than their parents and grandparents. Plus, they have suffered, and will continue to suffer, the consequences of years of taxpayer resistance to making public investments in infrastructure, transportation, education, etc., that are key to any generation’s future prosperity.

Asking them to now take on an even greater tax burden is unconscionable.

We do ourselves a disservice as a nation when we insist on seeing, and discussing, tax policy as a matter of class warfare -- as a re-distribution of wealth between individuals, from the “greedy rich” to the “undeserving poor.”

In reality, taxes are about a transfer of wealth and public resources between generations.

Our failure to recognize this has already contributed to an economy in which the gap between rich and poor grows ever wider. Continuing to ignore the generational consequences of tax policies like those already applied, and those being considered, by this administration, will transform our society – in ways that I think few Americans would intentionally choose.

It will lead to a society in which the personal attributes of creativity, energy, hard work and ambition mean less and less to an individual’s future prospects, while inherited wealth means more and more.

And that will mean economic stagnation, and the end of the American Dream.

(Source: Primelife, Orange, California)


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