Shifty Tax Cuts: Passing the Buck?

Talking Points

Effects of Tax Cuts
· According to the Congressional Budget Office, tax cuts will exacerbate income inequality by raising the after tax incomes by a much greater percentage for the top 1% of households than for any other income group.
· Tax cuts are a poorly designed economic stimulus: each $1 of tax cuts has produced only 74 cents of added economic demand the next year because the tax cuts were skewed toward high-income households, who are much less likely than other households to spend their tax cuts quickly.
· An alternative stimulus package of temporary tax cuts aimed at low- and middle-income Americans, a temporary boost in unemployment benefits, and additional temporary aid to states would have generated more short-term demand ($1.20 for each $1 of cost) and thus produced much more economic and job growth. Such a package also would have cost much less than the enacted tax cuts, especially over the long term.
· The Economic Policy Institute reports that 2.7 million fewer jobs have been created since passage of the 2003 tax cut than the Administration had predicted.
· The Office of Management and Budget’s Mid-Session Budget Review, released July 30, shows that the tax cuts have accounted for 57 percent of the cost of all legislation enacted since the Administration took office. In other words, tax cuts have contributed more to the worsening fiscal situation than all other new government policies combined, including all new costs related to Iraq and the war on terrorism and all domestic spending increases.
· A recent report by CBPP and the Urban Institute-Brookings Institution Tax Policy Center finds the tax cuts ultimately are likely to make most households worse off. The government must cover its bills by raising taxes or cutting spending. Financial markets will not tolerate persistent deficits of the size that are now forecast. The study found that under the two scenarios it considered for paying for the tax cuts, more than three-quarters of households would end up worse off. That is, they would lose more from the tax increases and/or spending cuts instituted to pay for the tax cuts than they would gain from the tax cuts themselves.

The Working Class
· The tax shifts have moved the burden of paying taxes from corporations, inheritance and investment wealth to the payroll tax on wages of hardworking individuals for generations to come.
· Tax cuts during war time is unprecedented: for 3 years tax cuts have been passed for the wealthy while the US soldiers fight, die and find veteran services cut when they return
· Societies investments create opportunities for individual security and success: Polls show that 91% of Americans believe our society should make sure everyone has an equal opportunity to succeed and that 75% want the government to create opportunities and keep the economy growing.


African Americans
· Current unemployment for African Americans is twice that of whites – jobs that are currently happening pay less than the ones they replace.
· African Americans make up 20% of the US Armed Forces compared to only 13% of the total population.
· Giving tax cuts to the highest income earners while others are fighting and dying is not only unheard of, but unprecedented.
· Over 30% of minimum wage women are African American and Hispanic – they represent less than 25% of the female workforce.
Latinos
· Weekly earnings for Hispanics dropped between 2003 and 2004 – the median family income has dropped overall by $1,500 since 2000.
· A progressive tax plan repeals tax cuts only for those who earn over $200,000 a year – providing money for job creation and support programs like college tuition aid, small business assistance and new jobs tax credit.
Tax Cuts or Tax Shifts?
· Tax cuts have shifted the burden to states: between 2000 and 2003 the share of the total tax burden born at the state and local level jumped 15%. In turn, states have cut their budgets by 5% -- billions of dollars in reduced services: laid off teachers, reduced library hours, unrepaired roads and bridges, public transportation and increased college tuition, among others.
· Between 2002 and 2004 the newly enacted federal tax cuts delivered over $190 billion dollars – ten times the amount of state aid – in new tax breaks for the top 1% of Americans (households making over $300,000 annually) .
· The tax cuts are doing little to counteract the economic divide: In 2000 the bottom 20% averaged $13,700 in after-tax income and the middle averaged $41,900 while the top 1% averaged $862,700 after taxes. This is the widest income gap since the 1920’s.
· Since 1962 the top corporate tax rate has been cut from 52% to 35% and the top income tax rate has been cut from 91% to 35%. At the same time, the payroll tax has been raised from 6.25% to 15.3%.
· According to one estimate, 75% of Americans pay more in payroll tax than in income taxes.
· Households with incomes over $1million will receive tax cuts averaging $123,000 – causing their after tax income to jump more than 6%.
· Since payroll taxes were raised in the early 80’s, workers have been paying “extra” taxes into the Social Security Trust Fund – this storehouse of public savings now totals $1.7 trillion. In February 2004, Federal Reserve chairman Alan Greenspan proposed cutting Social Security benefits in order to deal with federal deficit – essentially taking some of the $1.7 trillion currently in the Social Security Trust Fund to cut the deficit in order to continue financing tax cuts for the wealthy.
· Since 1962, the share of federal revenues contributed by corporations has declined by two thirds, while that contributed by individuals and unincorporated small business has risen 17%.
· The burden of tax cuts, 2001 recession, rising health care costs, and tax evasion that decimated the 2001 surplus and boosted the deficit and national debt will fall on future generations.

Investment Tax vs. Income Tax: Who pays more?
· Total federal personal taxes paid on wages and other earnings – including both income taxes and Social Security and Medicare taxes – now average 23%. By contrast, federal personal taxes on investment income averages about 9%.
· Wages and earnings are 71% of total personal income, but taxes on earnings make up 88% of total federal personal taxes. In contrast, investment income is 22% of total personal income, but taxes on investment income are only 11% of total personal taxes.
· Earnings are taxed twice at personal level. Overall, Social Security and Medicare taxes actually take a larger share of earnings than income taxes – 12% vs. 10%. Investment income is exempt from helping to support Social Security and Medicare.
· While almost all earnings are reported on income tax returns (due to wage withholding), a large share of investment income – as much as a quarter of investment income – is not reported.
· The Bush Administration tax cuts on income tax rates, combined with tax breaks for capital gains and dividends have lowered personal taxes on investment income by 22%. In contrast, the Administration has reduced taxes on earning by only 9%

Health Care Costs
· 5 Million people have lost their health care coverage since 2000.
· Last week, Medicare announced a 17% increase in premiums, the largest in the program’s 40 year history.