Accelerating In The Wrong Direction

This year’s Forbes 400 list of the wealthiest people in America includes 170 billionaires, and you had to be worth $475 million to get on the list at all. There are 36 million people in this country living below the poverty level, and that does not count millions more of the working poor.

The combined wealth of the Forbes 400 increased by 31 percent last year. Bill Gates, the richest man in America, more than doubled his net worth from $18.5 billion to $39.8 billion. The Nation notes that it would take the median U.S. household earning $35,000 a year 600,000 years to make as much as Gates did last year. He is worth more than the gross national product of Central America.

I bring this up not just because it’s so astonishing, nor to promote “class warfare,” which is the accusation one gets whenever one points out the increasingly unfair distribution of wealth in this country. I have no wish to deny Gates the fruits of his labor (although, personally, I don’t think we saw $21.3 billion worth of fruit, much less labor, from the man last year). The problem here is the pattern.

According to the Census Bureau: The top 5 percent of households (incomes above $119,540) increased their share of the nation’s income from 15.6 percent in 1981 to 21.4 percent last year. The top 5 percent of households has an even larger share of the nation’s accumulated wealth, holding about 60 percent of all net worth, according to The Nation. This trend is wrong, unfair, stupid and dangerous to democracy.

Others have gone into the delightful details of how many of the 400 were “born on third” - that is, inherited their wealth. Take it as written that most of them did. The more important issue is what the trend means.

The First Rule of Holes is: “When you are in one, stop digging.” Unfortunately, our government is still digging madly; as you know, the bulk of the tax breaks in the recent budget deal between President Clinton and Congress go to the wealthiest people in the country. At precisely the point when concentration of wealth is somewhere between obscene and excessive, we gave the rich a huge estate tax break and many special interest goodies. This was dumb.

Less remarked is an even more redistributionist trend at the state level. According to the Center on Budget and Policy Priorities:

“When most states raised taxes in the early 1990s to cover recession-induced shortfalls, low- and middle-income taxpayers bore the largest burden. A study found that about half the new revenue came from sales and excise taxes. Income tax hikes brought in about one-third of the new revenue.

“As states cut taxes during the economic expansion of the last four years, however, nearly three-quarters of the tax cuts - 72 percent - were reductions in the personal income tax. And less than 2 percent of the tax cuts enacted in that period were net reductions in sales and excise taxes. Sales and excise taxes take the largest income share from lower- and middle-income residents because lower-income families must spend a larger share of their income than higher-income families spend. By contrast, income taxes fall more heavily on higher-income people.”

OK. Feds doing the wrong thing, states doing the wrong thing - what’s next? According to The New York Times and other sources, House Speaker Newt Gingrich and the “Republican revolutionaries” (my favorite oxymoron) are now hellbent on enacting their No. 1 Priority: the flat tax. No more progressive income tax; we all pay exactly the same rate - you, Bill Gates and beggars alike. The Republicans figure to sell you on this insane proposal with the following irresistible bait: It’s so simple.

Yes, my friends, the beauty of this handy-dandy nostrum, guaranteed to cure the blues, eliminate bad breath, stop the heartbreak of psoriasis and end ring around the collar is that it is simple, the essence of simple, simplissimo. And here’s the kicker: You will all be able to file your tax returns on a postcard and the world will be better for this.

Something’s simple here, all right, and it’s anyone dumb enough to fall for this. What are the two most common political mistakes? 1. Taking something simple and trying to make it complicated, and 2. taking something complicated and trying to make it simple.

Taxes are complicated. In Jerold Waltman’s “Political Origins of the U.S. Income Tax,” he traces the following conflicts: What is income? Earned, unearned? Self-generated goods and services? Barter for goods and services? What about fluctuations in the value of property? What about capital gains: income or not income? What if the property is not sold but passed to an heir - what is the amount of income to that heir?

A person starts a business, uses his previously personal truck for two years solely for business purposes and then sells it - what is the basis for taxation? Should all persons who receive the same income be taxed alike? Suppose one is married and has four children while the other is single? Should corporations be taxed, and how and at what rates? What if a taxpayer suffers a debilitating illness? What about using the tax system to encourage or discourage other activities, such as home ownership or charitable contributions?

Simple, anyone? xxxx