[Dialogue] Fighting Feudal Taxes

[Harry Wainwright]

Published on Friday, April 14, 2006 by TomPaine.com
<http://www.tompaine.com>  

Fighting Feudal Taxes 

by Gar Alperovitz

 

It's no secret that the Bush administration has showered high-income groups
with federal tax benefits. Nor is it news that income and wealth is highly
concentrated at the top. What have gone largely unnoticed, however, are new
signs that outside of Washington, state by state, the public is quietly
beginning to challenge the privileged position of those at the top.   

The United States is the most inequitable advanced nation in the world.
Every year since 1996 the top 1 percent has garnered more income than bottom
100 million Americans taken together. Wealth ownership is even more
concentrated than income. Indeed, it is literally feudal: The top one
percent of wealth holders owns roughly half of all financial and business
wealth. The top 5 percent owns almost 70 percent of such wealth. In 2003 the
top 1 percent alone received 57.5 percent of all capital gains, rent,
interest and dividend income-up from 37.6 percent two decades earlier. A
recent analysis by The New York Times and Citizens for Tax Justice found
that 43 percent of the Bush dividend tax cuts went to taxpayers with incomes
greater than $1 million, who make up a mere 1/10th of 1 percent of all
taxpayers.

This extraordinary situation is bad not only for those at the bottom of the
economic pyramid, but for the nation as a whole. You don't have to be a
radical to recognize that, historically, huge political power regularly
follows huge wealth, with disastrous implications for democracy.

Signs of growing public concern over the wealthy not paying their fare share
can be found just beneath the radar of media attention in many parts of the
country. Commonly, state tax practices follow and are linked to federal
practices in numerous specific areas. In the five years since Congress voted
to reduce the federal estate tax, however, 18 states-including conservative
Kansas and North Carolina-and the District of Columbia have either decoupled
(elected not to follow) their tax regulations from the federal approach or
enacted new estate tax legislation.

Eighteen states and the District of Columbia have also decoupled from one of
the largest modern corporate giveaways, the so-called Federal Production
Activities (QPAI) Deduction. Thirty-one states have decoupled from a related
corporate tax break, the appropriately-named "bonus" depreciation changes of
2002 and 2003.

New Jersey has gone further and imposed taxes on those making more than
$500,000-using proceeds to offset property taxes that fall
disproportionately on the middle and lower classes. In 2004 California
voters overwhelmingly approved tax increases for people making above $1
million-with the proceeds earmarked for mental health programs. A follow-on
initiative this year  organized by actor/director Rob Reiner will propose
taxes on the top 1 percent (individuals making more than $400,000 and
couples making more than $800,000) to pay for quality preschool for all
four-year-olds.

Another story missed by the media: A recent Connecticut poll found 77
percent of voters-including 63 percent of Republicans-in favor of a tax on
those making more than $1 million. Although a proposed "millionaire's tax"
did not pass in 2005, it produced enough support to enact what amounted to a
"fall-back" proposal-a new estate tax and a temporary 20 percent corporate
income tax surcharge.

Even in red-state Virginia the state senate approved special taxes on those
making more than $100,000 and $150,000 in 2004 (as in Connecticut, the
proposed levies helped in subsequent bargaining with the Virginia House of
Delegates). Tennessee and New Hampshire have special taxes on interest and
dividends which fall mainly on those making more than $100,000.

There have even been some grassroots stirrings directed at taxing wealth
(not simply income). Florida is currently the only state with a modest
"intangible" tax on stocks, bonds and other wealth-a provision of law which
Governor Jeb Bush opposes but so far has been unsuccessful in abolishing.

Progressive policy think-tanks in two states have put forward much bolder
strategies. In Washington the Economic Opportunity Institute has proposed a
1/2 percent tax on wealth, which (after exempting the first $1 million)
would yield $477 million in annual revenue. The New Jersey Policy
Perspective group has proposed 1/4 percent financial assets tax levied on
those with financial holdings in excess of $2 million-i.e. only about 35,000
top asset holders statewide.

What is politically intriguing about these various strategies is not simply
that they target the rich; it is that they do not divide the middle class
politically from low and moderate income Americans. Unlike taxes that hit
the (largely white) suburban 20 percent to generate benefits for lower
income groups (commonly people of color), such strategies put the bottom 95
to 97 percent on one side of the political divide, with only a very small
elite being targeted.

Driving all this, of course, is the search for new financial resources in an
era of growing fiscal pain at all levels. The federal income tax, which once
seemed as unlikely as some of the currently emerging elite income and wealth
tax proposals, became law after a long build-up of concern and political
initiative around the country. If the social and economic pain continues to
build-and if America's financial elites continue to garner such huge shares
of the nation's economic resources for themselves-we may well begin to see
more far-reaching state and even federal changes than most observers
currently imagine possible. 

Gar Alperovitz is the Lionel R. Bauman Professor of Political Economy at the
University of Maryland, College Park and the author of America Beyond
Capitalism: Reclaiming Our Wealth, Our Liberty,
<http://www.amazon.com/exec/obidos/ASIN/0471667307/commondreams-20/ref=nosim
>  and Our Democracy. 

C 2006 TomPaine.com 

###

 

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