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The Bush Tax Cuts and the Republican Cult of Affirmative Action

By       Message David Fiderer     Permalink
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"Poor me!" decried Warren Buffett. "I'm forced to pay more income taxes than everyone else in my zip code! Why should everyone else get a free ride?"

Because of his affirmative action mindset, which measures tax burden according to headcount instead of income, he was unable to evaluate fiscal matters in a mature, adult fashion. Of course the real Warren Buffet has none of the imbecility evidenced by right wing storefronts like The Heritage Foundation or The American Enterprise Institute, which promote the same claptrap about the superrich being victims of economic discrimination.

"The U.S. tax system is already highly progressive," claims the Heritage Foundation, in text adjacent to a big chart filled with bright pretty colors. "The top 1 percent of income earners paid 40 percent of all federal income taxes in 2007, while the bottom 50 percent paid only 3 percent. More than one-third of U.S. earners paid no federal income tax at all." Again, it's all about taxes and headcount, with no mention of income, or income distribution, or fiscal prudence. These guys can't walk and chew gum at the same time.

Two Groups of Taxpayers: Each Earned $1 Trillion

To explicate the many levels of deception embedded in these rightwing websites, we can look at some real numbers, and use real financial analysis. The starting point is adjustable gross income, not headcount, because, duh, income taxes are imposed on income. There are two groups that earned equivalent amounts of taxable income, just over a $1 trillion, each representing about 12% of the national total in 2007. We'll call them Group A and Group B. Group A is the top 0.1% of earners (not the top 1%, the top 1/10 of 1%), all of whom earned in excess of $2.1 million that year.

Group B represents the bottom 50% of earners that year, all of whom earned less than $33,000. By definition, the headcount for Group B is 500 times larger than that for Group A. But don't be fooled into thinking that most of 70 million Americans in Group B earned anything close to the princely sum of $33,000 in 2007. Their average income is less than half that amount. (If you find these numbers surprising, you obviously have not read Arianna's latest book, Third World America.)

Source: IRS

Of course, the levels of taxable income seriously understate the disparity in wealth between these two groups. Many wealth transfers escape current taxation, because assets are passed through inheritance with a stepped up tax basis.

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The rich pay all the taxes and other lies.

In terms of dollars and cents, Group A paid six times the total income taxes paid by Group B. "Aha!" say the right wing crackpots. "The rich pay all the taxes and everybody else gets a free ride." Ariel Fleischer likened the situation to a pyramid scheme, something cooked up by Bernie Madoff. It's a standard ploy of Fleischer and his ilk: Project your own dishonesty onto others.

Fraudsters like Madoff or Enron's Jeffrey Skilling, or Ariel Fleischer all use the technique. They spew a lot of mumbo jumbo to conceal the truth about where the cash goes. Remember, in the real world, if you lose track of the cash, you are clueless. And in the real world, the notion that Group A pays out significantly more cash to the government than Group B is a great big lie. That's because the cash paid out in Social Security taxes is used to subsidize the current operating deficit. This fact is indisputable.

Look at any the last 20 versions of The Budget and Economic Outlook published by the CBO, or look at historical tables from the OMB or any budget that has come out of the White House since the 1980s. They all say the same thing:

The "Off-Budget" results, aka Social Security, show surpluses. The "On-Budget" results, aka government operations, show deficits. The two are netted, so the On-Budget deficits don't look so bad. The reason it was done this way was because, as noted before, here and here, the Bush Administration thought that Social Security benefits were a revocable promise. And of course Bush eagerly sought to formalize that revocation. Whether you agree or disagree with Bush, here are the facts:

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In 2007, the On Budget Deficit was $642 billion. 
In 2007, the Social Security Surplus was $183 billion. 
In 2007, the Federal deficit was $459 billion. 

Source: OMB Historical Tables, p. 23

The numbers are irrefutable and all cash is fungible.

So if you look at how all the cash is paid into the same budgetary pot, which is the only honest way to do it, then the truth emerges. Group A's cash contribution of $227 billion is is not six times higher, but only 1.37 times higher than Group B's cash contribution of $166 billion. And Group A's tax rate was only 1.4% higher than the national average. (See note on calculations below.)

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For over 20 years, David has been a banker covering the energy industry for several global banks in New York. Currently, he is working on several journalism projects dealing with corporate and political corruption that, so far, have escaped serious (more...)

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