Squeezed by Taxes? You're Not Alone

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Chewing some gristle on tax day? Here's a bit of news for you. Mississippi's two Republican senators in Washington, D.C., Thad Cochran and Roger Wicker, voted for another tax break for the über-wealthy this month, voting to raise the full exemption on inheritances from $7 million to $10 million per couple and to drop the top rate on fortunes over $10 million from 45 percent to 35 percent.

Cochran and Wicker voted "hell-yeah" on an April 2 amendment to Senate Concurrent Resolution 13 that expanded the amount the super-wealthy did not have to pay in estate taxes. Thanks to every Republican in the Senate and 10 rich-lovin' Democrats, Daddy Warbucks can now leave you a couple of mansions and a handful of yachts that you don't have to pay any taxes for if they stay under the $10 million mark. It was a very generous move considering a 2006 Responsible Wealth report estimating that only 20 Mississippi families qualified to take advantage of this particular tax loophole.

Wicker did not return calls, but Cochran argued that the exemption extended to Mississippi's multitiude of $10 million farms.

"As Americans are dealing with the impact of this economic downturn, now is the ideal time to provide a little relief to our small businesses and family farms that would be devastated by the impact of the death tax," Cochran said in a statement. "These small business owners are people who employ thousands of Mississippians, and we cannot afford to allow these jobs to be jeopardized by a death tax liability that would require them to liquidate their business assets."

Cochran's statement runs counter to a 2006 Responsible Wealth report estimating that only 20 Mississippi families qualified to take advantage of this particular tax loophole.

The nation's overall trend is toward poverty for the middle class. Weekly wages, after adjusting for inflation, were actually lower in 2007 than they were in 1979—the dreaded Carter years—according to the Economic Policy Institute's 2009 report "State of Working America."

It does not help that S&P 500 corporate CEO's made 30 times as much as the average worker in 1979, but in 2007 those same CEO incomes were an incredible 344 times higher, according to the 2008 report "Executive Excess 2008: How Average Taxpayers Subsidize Runaway Pay, 15th Annual CEO Compensation Survey," from the Institute for Policy Studies.

Progressive Tax Advocate Institute for America's Future reports a volley of reasons the middle class is feeling the squeeze. In 1980, for example, the top marginal tax bracket was 70 percent, but in 2009, it dropped to 35 percent. The $10 million maximum estate tax exemption referenced earlier was only $324,000 in 1980.

There's also the matter of Social Security taxes. Combined employer-employee payroll taxes rose from 6 percent in the 1960s to more than 15 percent in the new millennium. By the way, only income of less than $106,800 is subject to Social Security taxes; make more than that and you get to keep more.

The same report explains that the middle 60 percent of incomes (about 68.3 million households), brought home 44.1 percent of the nation's income in 2006, less than the 50.9 percent they brought home in 1980. In contrast, the top 1 percent (only 1,100,000 households) brought home 16.3 percent of the nation's income in 2006—a doubling of the 7.7 percent they took home in 1980.

And here's something else for you to chew on while you frantically try to finish your taxes and write out those hateful checks today: Working Americans pay tax rates of up to 35 percent on the income they earn from their jobs. But stock brokers like Warren Buffett, who earn their income through stock trading, treat their income as capital gains, subject to a tax rate of only 15 percent. This means Buffett pays taxes at a lower rate than his receptionist, according to Institute for America's Future co-director Robert Borosage.

Borosage said policymakers like Cochran and Wicker have been working for lavish tax breaks on the very wealthy since the 1990s.

"The size and number of loopholes and tax breaks available to the richest 10 percent of Americans is a scandal," Borosage said in a press release. "It's inconceivable to most people that billionaire hedge fund managers pay taxes at a lower rate than their receptionists. But this is increasingly where we find ourselves."

So as you zip off to your tea-bag party this week, make note of how many millionaires are standing beside you in the crowd, if any.

(Updated 4/17/2009 to include comments from Sen. Cochran.)

Previous Comments

ID
145948
Comment

The Reupiblicans once have shown who is more important to them. It definitely not the middle class and working poor of the state of Mississippi.

Author
daw
Date
2009-04-15T21:10:34-06:00
ID
145953
Comment

Yet, the teabaggers only wanted to target Democrats yesterday.

Author
golden eagle
Date
2009-04-16T07:36:25-06:00
ID
145954
Comment

That is amazing! Even though I already knew most of the information that was posted, it still never seizes to amaze me. In addition, why is it that the main people who will benefit from Obama's tax plan seems to be the main people protesting it? Could they really be so blind and so commited to a certain party to not realize that the old ways of doing business is hurting them (middle class)the most?

Author
Tell it!
Date
2009-04-16T07:52:25-06:00
ID
145960
Comment

Democrats are the ones proposing enslaving future generations to pay off Chinese bondholders. :)

Author
Ironghost
Date
2009-04-16T09:05:05-06:00
ID
145961
Comment

This article has so many logical fallacies that it borders on ridiculous. Another piece of populist, "blame the rich" yellow journalism. I particularly love the references to how great things were back in 1980. Um, hello, stagflation was killing the economy. A primary tenet of the *very successful* supply-side economic theory is that lower taxes stimulate the economy. A direct result of this was the 1982-~2000 economic boom.

Author
QB
Date
2009-04-16T09:30:40-06:00
ID
145962
Comment

That makes me smile, Harry. ;-)

Author
DonnaLadd
Date
2009-04-16T09:34:47-06:00
ID
145965
Comment

Fat Harry, you simply cannot deny that supply-side economic theory contributed mightily to the mess we're in now. That "boom" you're referring to was at the root of the bubbles we're trying to recover from. We have got to become more informed about the way our economy works instead of simply knee-jerking into platitudes. Not taxing the rich is does not successfully stimulate the economy, as the last decade has shown. In light of massive unemployment and threat of a depression, Cochran and Wicker voting to give the rich even more tax breaks is irresponsible.

Author
Ronni_Mott
Date
2009-04-16T10:00:32-06:00
ID
145970
Comment

Ludicrous. I had to pay nearly $3000 to Uncle Sam this year because of a glitch in payroll that wasn't caught until it was too late. Not that my checks were exhorbitant to begin with - now they're even less. But I did get a slight increase with the tax cut enacted April 1. It's enough to buy a tank of gas, but still. I feel like I will never get ahead, yet these ya-hoos are getting break after break after break. It makes me very sad.

Author
andi
Date
2009-04-16T11:35:22-06:00
ID
145975
Comment

OK Ronni, we've seen that taxing the rich heavily doesn't work (see 1970's). I'm not sure how low taxes have created the current mess we are in. Are you saying that if corporations and individuals didn't have the money to spend, the housing crisis would not have happened? That money would have been better off being in government coffers? Penalizing success has never worked. And before you argue that the death tax doesn't penalize success -- those proceeds have already been taxed once, and in the case of dividends twice.

Author
QB
Date
2009-04-16T13:05:36-06:00
ID
145976
Comment

The only "working Americans" who are paying at the 35% income tax rate are...bing bing, the oft-maligned "super rich". I suppose buying, operating, and selling companies like Berkshire Hathaway does isn't really "working." And of course, lets not forget the dig at "stock broker" (really?) Warren Buffet.

Author
QB
Date
2009-04-16T13:09:07-06:00
ID
145977
Comment

I think Harry's got ya'll, so I won't say anything. :D

Author
Ironghost
Date
2009-04-16T14:11:54-06:00
ID
145978
Comment

Harry's got nothing but his own undies in a bunch. First, taxing the rich doesn't work, and the 1970s is your proof? The real, sustained boom of the latter 1950s and 1960s took place when the top bracket was even higher than it was in the 1970s. There simply isn't a correlation between economic performance and the top tax bracket, and no amount of voo doo will change that. Second, even Warren Buffet has said it's outrageous that his secretary gets taxed at a higher rate than he does. The reason why is that we tax income from hedge funds as if it isn't income, so the effective tax rate is 15 percent for hedge fund managers. Don't cite Buffet in your defense, because he supports higher taxes on himself. Finally, the estate tax does typically does not tax income twice, because despite bootstrap fantasies to the contrary, most wealth is still inherited. Let's bring some facts into this conversation. What do you say, teabaggers?

Author
Brian C Johnson
Date
2009-04-16T14:23:41-06:00
ID
145979
Comment

Fat Harry, "supply-side" economics, otherwise known as "trickle-down" economics says that you can stimulate growth by reducing taxes (especially on big business and the wealthy) and deregulating commerce. Taxing or not taxing the rich does very, very little either way to stimulate the economy. The rich don't make or change basic buying decisions on their income tax rates. You don't stop buying steak, for example, or squirrel away cash in lieu of replacing your black pants if you have thousands (or millions) in the bank. You might not buy that fourth car or sixth vacation cottage, but we're talking about an extremely small group of people and a negligible economic impact. Similarly, lowering taxes on big business only serves to make more money for big business. Rarely, if ever, do local economies or average workers benefit anywhere near as much as the corporate entity itself. A new Wal-Mart might give a town some temporary construction jobs and more minimimum wage employment, but the real money goes back to corporate headquarters. The downside, of course, is that it puts local businesses out of business because they can't compete. So who wins and who loses? "Trickle down" (aka supply-side) economics are b.s. The theory should be renamed "trickle up." Conversely, raising or lowering withholding taxes on middle and lower-income people and small business has an immediate effect on retail sales, for example, because we frequently make buying (and hiring) decisions from paycheck to paycheck. So, for most of us the tax issues in supply-side economics has bitten us all in the butt, unless you happen to be very rich. And then, of course, there's the deregulating part. It's deregulation of banks and Wall Street that created all those insane subprime mortages and convoluted trading vehicles that created and then rang the death knell for the housing bubble, for example. As for the "death" tax, as the monied have ominously dubbed inheritance taxes, raising the limits benefits only the wealthy and really doesn't apply to "income," as Brian pointed out. For most of us, we'll never come within arms length (or any other body part) of a $10 million inheritance. It was and always has been a bogus argument designed to create fear and uncertainty in the "lower" classes, and give the rich more money to play with. I don't think success should be penalized, Harry, but whose success are we talking about? Trust fund babies didn't create the success of their daddies and granddaddies. "Penalizing success" is just another talking point designed to shut down our brains from actually thinking about what the issue really is.

Author
Ronni_Mott
Date
2009-04-16T14:37:48-06:00
ID
145980
Comment

I suppose buying, operating, and selling companies like Berkshire Hathaway does isn't really "working." Buying and selling companies doesn't produce anything, Fat Harry. All it does is make more money for those that already have quite a lot. Think about this: What is wealth? Is it a digital blip created by rising and falling stock prices? Is it interest? Is it a number on your bank statement? We have been well conditioned to believe that money and "stuff" equals wealth in our consumerist society. The "American Dream" has become little more than a competitive excuse to buy more stuff and go deeper in debt. Many of us think that true wealth isn't something that can appear or disappear in seconds. True wealth consists at least as much of intangibles like healthy, well-educated children and nutritious, unadulterated foods as it does our purchasing capacity. True wealth is a high quality of life that generally has nothing to do with money. All the money in the world isn't going to give you clean air and water if we, as a society, don't make those things priorities over stock prices.

Author
Ronni_Mott
Date
2009-04-16T14:58:55-06:00
ID
145981
Comment

It probably needs to be mentioned that the capital gains tax rate of 15% only applies to securities held for at least one year. Perhaps that has been stated, but from what I am reading, it seems as if the operating assumption on this thread is that the 15% rate applies across the board. Apologies if this was stated and I missed it. Ordinary tax rates apply to securities held less than a year. In other words, those who are rapidly buying and selling stocks generally cannot take advantage of this tax. The tax has many effects, one of which is to encourage consumers, and not just the rich, to invest in a particular stock (and stocks generally) and keep it in that stock for at least a year to receive the tax benefit. That, in turn, encourages some stability in the markets in that consumers have a disincentive to rapidly buy and sell stocks (if they want to take advantage of the lower tax at the end of at least a year). One side effect of doing away with the capital gains tax will be to provide a disincentive to consumers, and not just the rich, to invest in the markets because the tax advantage of doing so will no longer be available, which in turn, means less monies will be pumped into the private sector in order to provide operating revenues to private companies. To the Warren Buffett's of the world, and there aren't many, it doesn't matter a hill of beans what the tax rate is. He'd be rich if he were taxed at 75%. But the average investor is not Warren Buffett, and eradicating the capital gains tax will have a palpable effect on the average investor, his or her decision to invest in private markets, and the overall value of the markets. http://taxes.about.com/od/capitalgains/a/CapitalGainsTax_4.htm

Author
MAllen
Date
2009-04-16T15:26:20-06:00
ID
145990
Comment

It is fun to watch the teabagger shuffle, I must say. Who said those guys can't dance? FAIL for GOP. Tea parties big embarrassment with rednecks turning out in droves across the country to take any attention away from people in the crowd with something intelligent to say. In act, I just got an e-mail from the John Birch Society all aglow about it. Republicans really ought to watch the company they're keeping. If not, regional wingnut party in five, four, three ... Y'all can do better, Matt. Truly. Surely.

Author
DonnaLadd
Date
2009-04-16T18:04:43-06:00
ID
146033
Comment

This story has been updated with Sen. Thad Cochran's response.

Author
Ronni_Mott
Date
2009-04-17T12:27:19-06:00
ID
146036
Comment

I remember listening to a Republican talking about how freedom could not survive without that society having moral underpinnings. He was going on and on about something the "libs" were doing that he felt was terribly immoral. Probably abortion or gay marriage. Now while I'm sure that we, as a nation, can survive the horrors of two people who love each other getting married and people having the freedom of choice over their own bodies without losing our free society. I thought he had a really good point about how the American Dream would die without people exercising their freedoms in a moral way. About how with our freedoms comes a responsibility to use them morally. Ayn Rand wrote that "A code of values accepted by choice is a code of morality." So what is valued when a CEO and his executive team makes a bazillion dollars running their company into the ground and then as their best idea to save money they propose more layoffs? Where is the morality in wrecking the economy out of greed and amassing a fortune on the backs of the middle class and working poor? Those are the immoral acts threatening our country and our freedoms. And those are the moral acts of those that only value money not freedom or people or anything else. Henry Ford knew he couldn't sell cars to the average man if that man couldn't afford them so he paid good wages. Warren Buffet said, about the tax code that allowed him to pay tax at a lower rate than his receptionist, "...US government policy had accentuated a disparity of wealth that hurt the economy by stifling opportunity and motivation." I, personally, would love to live in Ayn Rand's laissez-faire utopia where people are ethical and moral and didn't need laws to tell them it wasn't wise for the health of your company or the economy or society to loot your company and your country for your own profit. But that is what most utopias are, a dream of some enlightened time in the future, hopefully.

Author
WMartin
Date
2009-04-17T13:56:06-06:00
ID
146037
Comment

A small business with more than $10 million in assets? Nice try, Thad.

Author
Brian C Johnson
Date
2009-04-17T13:59:01-06:00
ID
146042
Comment

A small business with more than $10 million in assets? As far-fetched as that sounds, Brian, certain businesses with more than $10 million are still classified as "small" businesses by the SBA. Here's their 44-page PDF list, that classifies what qualifies a business as "small" by either millions in receipts or number of employees, sorted by NAIC codes. Looks like new car dealerships and motion picture studios top the list at $29 and $29.5 million respectively. When the restriction is by number of employees, it's anywhere from 100 to 1,500.

Author
Ronni_Mott
Date
2009-04-17T14:41:05-06:00
ID
146045
Comment

Thanks Ronni. I always like to learn, even if it gets in the way of me making fun of Thad Cochran.

Author
Brian C Johnson
Date
2009-04-17T14:51:02-06:00
ID
146049
Comment

I hear ya, Brian. I'm not saying I agree with the classifications, mind you. I can see the money-grubbing fingerprints of lobbyists all over the list. WMartin, it's interesting that you brought up Henry Ford. I once heard an economist say that Ford's biggest innovation wasn't the assembly line, it was the fact that he created his market through his workers. Smart man. He figured out how to make his product affordable to every one of his workers, making sales people out of them in addition to customers.

Author
Ronni_Mott
Date
2009-04-17T15:20:24-06:00
ID
146056
Comment

Brian, Cochran actually managed to say a couple of "nice try" things in his response. First, his characterization of inheritance (or estate) taxes as "death" taxes. (It sounds oh, so much more ominous doesn't it? Bwa ha ha...) Second is his saying that not raising the inheritance limit would force businesses to liquidate (did I say Bwa ha ha?). Come on. For the 2008 tax year, the first $2 million of inheritance is exempt ($4 million per couple) already, raised to $3.5 million / $7 million for 2009. So we're now only talking about the very wealthy who will ever be affected, or about 0.14 percent of all estates, according to United for a Fair Economy. There are a many different tax-free ways a business can be passed from parent to child during the parent's lifetime and after death. They require financial planning, which is part and parcel of running a business. For example: parents can gift up to $1 million (given at the rate of $26,000 annually per couple, a lifetime maximum of $1 million is tax free); a business can be incorporated making the child an owner of the company; owners can set up trusts; they can use life insurance proceeds to pay taxes, etc. The only reason a business would be "forced" to liquidate is if the parent/owner didn't plan for his or her succession AND their business assets are more than $3.5 million (or $7 million for a couple). This is how the truth gets twisted: broad generalizations coupled with carefully chosen fear-inducing words, with obfuscation providing the uncertainty and doubt.

Author
Ronni_Mott
Date
2009-04-17T17:15:43-06:00

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