Tax Day's Unfairness
Since President Bush entered office, he has made tax policy a focus of his domestic agenda. "These are the basic ideas that guide my tax policy: lower income taxes for all, with the greatest help going for those most in need," said Bush of his "bold and fair tax relief plan." But a majority of Americans will not feel Bush's alleged tax relief today, as his tax schemes have disproportionately aided the wealthy, often at the expense of the poor and middle class. For example, in 2005, Bush's tax changes allowed Vice President Dick Cheney to reap $1.1 million in tax savings, but households in the bottom fifth income bracket only received an average of $20major force driving Americans to the polls in the 2006 elections, but Bush has still failed to deliver a fairer tax plan for Americans. "Despite major increases in outlays for war and security, the President and Congress substantially expanded the already unaffordable tax cuts in subsequent years. The fiscal and moral consequences of these blunders are staggering," states Robert S. McIntyre of the nonpartisan Citizens for Tax Justice.
A MORE UNEQUAL AMERICA: In part due to Bush's tax cuts for the wealthy, concentration of income in the United States is reaching record levels. "[T]ax rates faced by the wealthiest Americans have fallen, having also recently shown that the top 1% of American earners got a greater share of national income in 2005 than at any time since the 1920s." Americans earning over $1 million receive an average annual tax cut of [over] $100,000, whereas middle income families earning between $26,000 and $45,000 receive about $650. A study by the Congressional Budget Office explains that the "growing concentration of income at the toptip from progressive to flat in a matter of years, at least for the top half of earners," according to a recent economic study. Now, the case for comprehensive tax reform is more pressing than ever.
TAX BURDENS ON THE POOR: "More than one in six taxpayers in 2004 received the Earned Income Tax Credit (EITC), highlighting its growing role in bolstering the incomes of struggling low-income parents." The EITC is "a refundable federal income tax credit for low-income working individuals and families," originally approved in 1975 to offset taxes on the poor and provide incentives to work. Since then, it has been called "the nation's most effective antipoverty program for working families," as it helped lift "more than four million people abovewithin the EITC, causing "half of low-income married couples to have lower benefits." The EITC is also unnecessarily complex for lower-income Americans, as more than 70 percent of filers rely on paying commercial tax preparers. Center for American Progress Director of Tax Policy John Irons has documented several ways to improve the EITC's efficacy for lower-income Americans, including reducing the marriage penalty and creating additional credits for larger families. These changes make the tax code fairer and only cost a fraction of the changes Bush has made, states Irons.
MIDDLE CLASS FACES THE ALTERNATIVE MINIMUM TAX: An increasing number of Americans will be in shock about the Alternative Minimum Tax (AMT) this year. "The individual alternative minimum tax was originally designed to limit tax sheltering and to assure that high-income filers paid at least some tax." But Bush did not index the AMT to inflation and left it out of his original tax scheme; now it threatens to increasingly affect the middle class. "Unless the tax law is changed, some 23 million -- 17 percent of all filers -- will be subject to the AMT when they file in 2008," in contrast to the 3.7 million facing the AMT this year. Middle class citizens are being squeezed by the tax. One disgruntled taxpayer said that "the money she would ordinarily use for a vacation or to buy a piece of furniture will not be there. Instead, her family's annual income of $75,000 would be subject to the AMT. Unless something happens, she says, 'something will get cut from the family's budget.'" Any reform of AMT must make sure that wealthy Americans can no longer use loopholes to avoid their income responsibility, as capital gains are only taxed at 15 percent and "are not classified as sheltered income subject to the alternative tax. The result is that the richest taxpayers get a windfall while the burden shifts to others."
AN UNPRODUCTIVE REVENUE SERVICE: Reports show that the Internal Revenue Service has been increasingly "unproductive" in corporate audits. "[T]he IRS is wasting more and more of the time of its revenue agents during a period when, because of limited resources, the agency is auditing many fewer corporate returns than it did only a decade ago," according to a nonpartisan research group. As a result, corporations get a hefty break. "The percent of large companies audited fell from 44 percent in 2005 to 35 percent in 2006, and the average number of hours per audit fell from 978 to 941." The amount of money the IRS recommends for collection from these corporations dropped from $30.1 billion in 2005 to $25.5 billion in 2006. Simultaneously, the IRS is much more likely to audit the middle class. "Audits of these middle-class taxpayers rose to nearly 436,000 last year, up from about 147,000 returns in 2000," tripling audits of tax returns filed by people making $25,000 to $100,000. Furthermore, the Government Accountability Office reported major security vulnerabilities in the IRS, "threaten[ing] the confidentiality, integrity, and availability of IRS's financial and tax processing systems." In turn, taxpayer information remains more vulnerable to "scams." from the tax cuts in 2006. Dissatisfaction with the state of the economy was a continues a long-term trend." "The share of after-tax income going to the top one percent rose from 12.2 percent in 2003 to 14.0 percent in 2004," making that the largest one-year increase in the share of income going to the top one percent in 15 years. The United States is fast approaching a "historic threshold: Should current trends continue -- from higher payroll taxes to the potential impact of the Alternative Minimum Tax on middle-class earners -- the U.S. system could the official poverty line" last year. But Bush's 2001 tax plan cut marriage taxes across the board, except for
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