A Taxing Economy

April 15, 2008

by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Ali Frick, and Benjamin Armbruster Contact Us | Tell-a-Friend | Archives | Permalink

ECONOMY

A Taxing Economy

Today is the deadline for Americans to file their tax returns. This past year has been tough on U.S. taxpayers, with their hard-earned money going toward the Bush administration's misplaced priorities: a personal chef for an ineffective Housing and Urban Development Secretary and new contracts for an exploding defense contracting industry. Even the Internal Revenue Service is wasting $37 million in taxpayers' money by hiring expensive, ineffective private debt collectors to "pursue tax scofflaws," a task that could arguably be done more effectively by the agency itself. Most importantly, as Joseph E. Stiglitz and Linda J. Bilmes note in "The Three Trillion Dollar War," each American household is spending approximately $100 each month toward the "current operating costs" of the Iraq war (p. 138). Not surprisingly, the majority of Americans are pessimistic about the U.S. economy as the gap between the rich and the poor widens and Bush's tax cuts fail to deliver on their promises. Consumer confidence is at an all-time low, and fewer Americans now "than at any time in the past half century believe they're moving forward in life."

FALLING INTO THE GAP: In January's State of the Union address, Bush claimed, "In the long run, Americans can be confident about our economic growth." He has also repeatedly attempted to tie his tax cuts and the Iraq war to economic growth. A new Washington Post-ABC News poll released this tax day finds that seven in 10 Americans "now give negative ratings to the president's stewardship of the sinking U.S. economy." American families are facing a "perfect storm" of "[m]assive amounts of debt, falling house prices, disappearing jobs, flat wages, lower benefits, and skyrocketing costs for the most important consumer items." This devastating economic situation has been exacerbated by the Bush administration's policies. A recent study by the Center on Budget and Policy Priorities and the Economic Policy Institute (EPI) finds that the "gap between the richest and poorest families, and between the richest and middle-income families, grew significantly in most states over the past two decades." Average income fell by 2.5 percent for people in the bottom fifth of income earners and 1.3 percent for those in the middle fifth but rose nine percent for people in the top fifth. Seventy-nine percent of respondents in a new Pew Research Center poll say "it is more difficult now than five years ago for people in the middle class to maintain their standard of living."

BOOSTING LARGE CORPORATIONS: Not only has the income gap widened, but the wealthiest Americans have also seen their tax rates drop. According to EPI, between 1960 and 2004, "the average tax rate has fallen by about 14 percentage points (from 44.4% to 30.4%) for the top 1% of earners (those making more than $435,000 in 2007), while it has increased slightly (from 15.9% to 16.1%) for those in the middle 20%." Additionally, in FY 2007, the nation's largest corporations -- with $250 million or more in assets -- were audited at the "lowest level in the last 20 years." At the same time, audits of smaller corporations -- with $50 million or less in assets -- are climbing. The Bush administration has also been turning a blind eye toward federal contractors, who owe $8 billion in unpaid federal taxes. For example, KBR, which until last year was a subsidiary of Halliburton, has avoided paying more than $500 million "in federal Medicare and Social Security taxes by hiring workers through shell companies" based in the Cayman Islands. The Bush administration has aided this tax dodging. One of KBR's shell companies was set up two months after Cheney became Halliburtion's CEO in 1995. Congress is currently considering a bill "to bar federal agencies from awarding contracts to people or companies that have failed to pay their federal taxes."

DOUBLE PENALTIES ON DOMESTIC PARTNERS: Employer-provided health coverage continues to be the backbone of health coverage for American families. Approximately 60 percent of Americans received employee health benefits in 2007, with the majority of employers also providing coverage for the employee's spouse and dependents. Only 22 percent of employers, however, cover same-sex partners of employees, and just 28 percent cover different-sex domestic partners. As a result, "married workers who get family health insurance benefits get a double benefit -- they get health insurance coverage for their spouses and children and are not taxed on the value of that coverage." Workers with an unmarried domestic partner are not so lucky and are doubly burdened. Their "employers typically do not provide coverage for domestic partners; and even when partners are covered, the partner's coverage is taxed as income to the employee." As an analysis by the Center for American Progress and the Williams Institute notes, employees with domestic partners "now pay on average $1,069 per year more in taxes than would a married employee with the same coverage."