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Monday, August 07, 2006

Tax Cuts: Shameful Sham

by Robert Kuttner

A minimum wage increase, the first in nearly a decade, got sidetracked yet again on Thursday when Senate Republicans tied its passage to a permanent estate tax cut for the wealthiest one percent of American families. Democrats refused to take the bait, and both measures failed.

The Republicans seem to be going out of their way to dramatize their passion for favoring the interests of the very richest over the livelihood of the working poor -- their brand of class warfare.

The federal minimum wage is now $5.15 an hour. In terms of purchasing power, that is its lowest level since the 1950s. The proposed legislation would raise the minimum to $7.25 by 2009.

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Last month, the House approved a clean minimum wage bill. The Republican leadership tried to keep it bottled up, but Republicans facing reelection in tight races persuaded their leaders to allow a vote, and dozens voted with the Democrats to increase the minimum wage.

But then Bill Frist, the Republican Senate leader, got cute. He decided to hold the minimum wage increase hostage to the tax cut. The proposal the Senate refused to pass Thursday would permanently exempt all estates of under $5 million, and $10 million for a couple, so that less than 1 percent of estates would pay any tax. It would drastically cut rates even on very large estates. Once fully in effect, the measure would cost an estimated $61 billion a year in lost revenue.

The minimum wage hike would help about 13 million hard-working Americans -- not people on welfare, but people holding jobs, sometimes multiple jobs. The estate tax cut would make the heirs of a few million extremely rich people even richer. According to the most comprehensive research on income trends, by economists Thomas Piketty and Emanuel Saez, the incomes of the richest 300,000 Americans, adjusted for inflation, more than tripled between 1970 and 2000. Incomes of the bottom 270 million Americans -- 9 Americans in 10 -- were basically flat. The real incomes of the working poor fell.

Under President Reagan and both Presidents Bush, the tax burden was shifted from the rich onto the middle class and the poor. The income tax was made less progressive, while payroll taxes were hiked. Today, 3 out of 4 Americans actually pay more in payroll taxes (which have no exemptions or deductions) than in income taxes. This warped set of priorities affects not just the top and the bottom -- the resulting increase in the federal deficit hurts the broad middle class. Every time another Republican tax cut for the richest pushes up the deficit, Congress responds by cutting federal outlays. The middle class takes the brunt.

So, if your college loan payments increase, or your Medicare fails to cover a needed treatment, or affordable housing has vanished because federal subsidies have been cut to almost nothing, or your local government increases fees and property taxes or cuts services because federal aid has been cut, you can thank the Republican program of tax cuts for the rich for depleting federal revenues.

And the mischief doesn't stop at legislated tax cuts. So obsessive is the Republican right about strangling public services that it is deliberately making it harder for the IRS to collect taxes that are owed, notably by the wealthiest.

In 1998, the Republican Congress cut the IRS's audit budget, and pressured the IRS to shift scarce enforcement resources from tax shelters used by the very rich to trivial errors in earned-income tax credit applications by the working poor. Audits on the richest fell, while audits on the working poor rose.

Last week, Senator Carl Levin of Michigan, a senior Democrat on the Senate Permanent Investigations subcommittee, released a staff report showing that outright cheating now costs the Treasury at least $70 billion a year. The report detailed sham transactions so complex that they overwhelmed IRS audit capacity. The subcommittee chairman, Senator Norm Coleman of Minnesota, was so dismayed that he took the almost unprecedented step of adopting the Democrats' minority report as the official subcommittee report.

Total taxes lawfully owed but uncollected are estimated at more than $300 billion a year -- roughly the size of the federal budget deficit. Much of the cheating involves very complex tax shelters and sham partnerships used only by the rich, and offshore tax havens. Yet the Bush administration gutted a proposed international tax agreement that would have increased reporting requirements on money-laundering transactions between US banks and foreign money tax havens.

After the Senate's deplorable action this week, our society remains a little more unequal, but our political choices have greater clarity.

Robert Kuttner is co-editor of The American Prospect. His column appears regularly in the Globe.

© 2006 The Boston Globe
SOURCE:
Tax Cuts: Shameful Sham

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