The $1.34 Trillion Giveaway To The Rich

(This cartoon image is by Pat Bagley in the Salt Lake Tribune.)

When the income tax was passed in this country, it was set up as a progressive tax. That means that those who made more money paid a higher tax rate than those who made less. This was deemed fair -- because those who made the most money could not only afford to pay the most, but they were the ones who had reaped the most benefits from the economy and government (and therefore owed the most to it).

This was a concept even endorsed by conservative icon Ronald Reagan, who said a bus driver should not be paying more in taxes than a rich man. But modern right-wingers are not interested in fairness, or in what their rich buddies owe to the country that helped to make them rich. They much prefer regressive taxation -- which means the less money you make, the larger portion of your income is paid in taxes. They have come up with a variety of loopholes and subsidies for the rich and the corporations to dodge paying their fair share in taxes -- so much so that many corporations pay no taxes at all (even though they make billions in profits) and most of the rich pay a smaller tax rate than many in the middle class.

One of the most pernicious of these tax-dodging schemes is the long-term capital gains tax rate. While the working and middle class pay the earned income tax rate, most of the rich (since they make their money from investments instead of actually working for it) pay a lower tax rate -- the capital gains tax rate. During the Bush administration, the Republicans decided that money received from investments should not be taxed at the same rate as earned income, so they set up a special 15% tax rate for investment income. This is how Mitt Romney wound up paying just over 13% on over $20 million in income -- because he paid only a 15% capital gains tax rate reduced by some charitable donations (to his church).

The rate was raised to 20% by president Obama, but only for the richest Americans -- those who would have to pay the top rate of 39.6% if they paid the earned income rate (so they are still getting a 19.6% tax break for receiving their income through investments instead of working for it). And there are still many in the top 5% of the richest Americans who still pay the 15% tax rate.

How much is this "subsidy" for the rich costing this country? Over the next 10 years, it will cost the government about $1.34 trillion in revenue. Just think of what this $1.34 trillion could do for this country. For starters, we wouldn't have to be cutting programs that help veterans, children, the poor, the unemployed, and the elderly. Unfortunately, the Republicans don't care about those groups. They only care about their true constituency -- the rich and the corporations. They would rather hurt ordinary Americans than make the rich and the corporations pay their fair share in taxes.

A special lower tax rate for the rich has never made sense. The only thing it accomplishes is to further increase the huge gap in income and wealth between the rich and the rest of Americans. Republicans will tell you that it creates jobs, but that is a lie. Only an increase in demand creates new jobs, and letting the rich pay a smaller tax rate than many in the middle class does nothing to increase demand.

It is time to restore some fairness to our tax system, and a good start toward that would be the elimination of the special lower capital gains tax rate. All income should be taxed at the earned income rates, regardless of its source (work or investments). But that can only be done by voting the Republicans out of power, and then putting pressure on the Democrats.