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Saturday, April 13, 2013

Under-Taxing the Rich Is Uncivilized

We all pay for those cuts down the road.
Please don’t fret about paying taxes. They’re your most productive investment. As Supreme Court Justice Oliver Wendell Holmes, Jr. noted more than a century ago, “Taxes are what we pay for civilized society.”

Tax cuts may bring some temporary relief for the yachting set, but we’ll all pay for them down the road. Like when your tire blows out hitting a pot hole that there was no money to patch.

Or a bridge collapses as your car crosses it. Or the local library scales back its hours to a handful a week.

At the local, state, or federal level, the lower taxes go, the poorer the arts become, the less reliable our transportation grows, the less protected our food and health turns out to be, and the more abused our environment gets.

Why isn’t that basic equation self-evident to everyone, especially the people who have the most money to invest in taxes?

One of the worst things the government can waste its money on is servicing the debt, which results from a mismatch between tax dollars and federal spending.

Supposedly Congress and the White House settled on a deal on New Year’s Day that would help fix the imbalance between tax revenue and government spending. Payroll taxes returned to where they’d been before Obama’s stimulus measures took effect, and the very richest 1 percent of Americans got their income tax rates restored to levels last seen in the early years of the George W. Bush administration. Capital gains taxes on Americans earning nearly a half-million bucks a year edged up, but they’re still lower than taxes on money earned the old-fashioned way: by working.

Republicans now want to get rid of debt by relying on spending cuts alone in the aftermath of the “Fiscal Cliff” pact. But our tax system needs more fine-tuning. Otherwise, thegrowing gap between the rich and poor will continue to balloon. As Mother Jones Magazine has deftly illustrated with striking graphics, the top 0.01 percent of American families average nearly $24 million per year in income. The bottom 90 percent of households, meanwhile, are averaging less than $30,000.

Warren Buffett famously complains about paying a lower tax rate than his secretary. But most very rich people don’t share his indignation about this injustice or join his call for it to be remedied with higher rates on people of means. Instead, they invest in lobbyists and politicians happy to do their bidding in exchange for campaign contributions. In return, they get loopholes, exemptions, deductions, and convenient definitions of what is and what isn’t taxable income.

Accountants, tax lawyers, and scallywags of every stripe have built a labyrinthine system riddled with secret passages to let the wealthy bypass gatekeepers and toll collectors. Many loopholes are big enough to fly a corporate jet through, both literally and figuratively.

While the wealthy may indeed cough up a goodly chunk of all the revenue that does get collected, that total is still peanuts compared to the percentage of the national income they take home or the giant share of all the national wealth that they have amassed.

The richest 1 percent of Americans owns three times as much of the nation’s wealth as everyone belonging to the bottom 80 percent. But their tax burden isn’t equally out of proportion, as financial consultant John Talbott demonstrated. By crunching the numbers, he determined that the rich spend a smaller share of their disposable income on taxes than the middle class.

Under-taxing the very rich is one key reason why the United States government has a burgeoning budget deficit. A civilized society would change course.

Emily Schwartz Greco is the managing editor of OtherWords, a non-profit national editorial service run by the Institute for Policy Studies. OtherWords columnist William A. Collins is a former state representative and a former mayor of Norwalk, Connecticut.