The Common Good
November-December 1999

And the Rich Get Richer

by Chuck Collins | November-December 1999

Who benefits from the tax cuts? (Hint: Not you.)

The real effect of Congress’ recent tax cut plan, which was vetoed by President Clinton, would have been to give away massive amounts of new "corporate welfare" and tax cuts to America’s wealthiest individuals. Clinton objected to the size of the proposed tax cut ($792 billion), but indicated he would support up to $300 billion in unspecified tax cuts—merely a scaled-down version of a bad bill. In 1997, he signed a "compromise" tax bill that gave the majority of tax cuts to the richest 5 percent of households.

The beneficiaries of these tax changes clearly would be the wealthiest 10 percent of the population, who would receive two-thirds of the tax cuts, according to Citizens for Tax Justice. The 60 percent of the taxpayers in the middle income quintile and below would receive less than 9 percent of the total tax cuts. Their average tax reduction would be only $157 a year. The best-off one percent of taxpayers, those making more than $301,000, would get an average tax reduction of almost $46,000 a year. The bill was structured to phase-in certain tax cuts over 10 years, with the corporate tax breaks and capital gains cuts first—and the few cuts that help working families not coming until five years later.

Hidden in the fine print was an estimated $82 billion in new corporate welfare subsidies, in addition to the existing $125 billion a year in corporate subsidies and loopholes. Major political contributions from military, restaurant, oil and gas, and insurance corporations helped to purchase sweeping tax cuts and loopholes. The big ticket item is $36.8 billion over 10 years in new foreign tax-haven shelters for multinational banks, insurance companies, auto makers, oil companies, weapons makers, and others.

The big corporate campaign contributers drove the contents of the tax bill. According to The Wall Street Journal, Lockheed Martin Corp. led the lobbying for a $1.1 billion loophole that would sweeten the benefits of foreign-sales tax credit rules for defense contractors. Silicon Valley computer firms won their $13.1 billion tax break by extending the business research tax credit. General Motors led the lobbying for liberalized rules on how multinational corporations deduct "interest expenses," a cost of $24 billion over 10 years.

WE HAVE A HISTORIC opportunity to make real investments in the economy to strengthen the commonweal and reduce economic inequality. Any new spending and tax cuts should be targeted to those who have not shared in the "economic boom" of the 1990s—wage earners, working families, smaller farmers, and the poor. Positive steps include minimal and targeted tax breaks such as expansion of the Earned Income Tax Credit, an increase in the personal exemption, and a reduction in the lowest tax rate—as well as government spending to expand prescription drug coverage to seniors, increase affordable housing, and protect Social Security and Medicare. If we can’t make these investments now, when will we make them?

The progressivity in the current federal tax system can be defended by opposing more corporate welfare and unnecessary reductions of capital gains and the estate tax. The Alternative Minimum Taxes on corporations and individuals should be retained. They were instituted in 1986 after it was discovered that some of the most profitable U.S. companies and wealthiest families were using loopholes to avoid paying any taxes.

As big money interests more and more write the rules in our democracy, the estate tax needs to be defended and expanded. The estate tax raises $25 billion a year from people who have seen their assets triple in the last decade, those in the richest 2 percent.

Other presidents in this century have defended the estate tax and progressive taxation. The establishment of the estate tax was a moral issue for President Theodore Roosevelt who, in 1906, viewed it as strengthening the national community through greater political and economic equality. He viewed the transfer of substantial wealth from one generation to the next as not doing any "real service" for inheritors and posing "a great and genuine detriment to the community at large."

Franklin D. Roosevelt in 1935 noted that "inherited economic power is as inconsistent with the ideals of this generation as inherited political power was inconsistent with the ideals of the generation which established our government." The choice on tax policy may be between taking a firm stand for fairness or watch society complete the slide into a new Gilded Age.

CHUCK COLLINS is the co-director of United for a Fair Economy in Boston. He is co-author of Shifting Fortunes: The Perils of the American Wealth Gap. For action alerts on the tax bill and more, see www.stw.org or call toll-free 877-JOIN-UFE.

Sojourners relies on the support of readers like you to sustain our message and ministry.

Related Stories

Like what you're reading? Get Sojourners E-Mail updates!

Sojourners Comment Community Covenant

I will express myself with civility, courtesy, and respect for every member of the Sojourners online community, especially toward those with whom I disagree, even if I feel disrespected by them. (Romans 12:17-21)

I will express my disagreements with other community members' ideas without insulting, mocking, or slandering them personally. (Matthew 5:22)

I will not exaggerate others' beliefs nor make unfounded prejudicial assumptions based on labels, categories, or stereotypes. I will always extend the benefit of the doubt. (Ephesians 4:29)

I will hold others accountable by clicking "report" on comments that violate these principles, based not on what ideas are expressed but on how they're expressed. (2 Thessalonians 3:13-15)

I understand that comments reported as abusive are reviewed by Sojourners staff and are subject to removal. Repeat offenders will be blocked from making further comments. (Proverbs 18:7)