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More Examples of How Our Economic System Is Designed to Transfer Wealth to the Rich From Everyone Else

January 16, 2002

Yesterday I gave two examples of how the economic structures of this country, and the "rules of the game," are designed to transfer wealth to the rich from everyone else.

Here are two more examples, one on the state level, the other on the federal level,  based on the columns of Paul Krugman in the New York Times:

Shifting the Tax Burden Away From the Wealthy: State Level

In the early 1990's, budget shortfalls led 44 states to raise taxes.  Then during the boom in the late 90's, states lowered taxes.  What's the problem, you ask?  How could raising, and then lowering taxes shift the tax burden?  Like this:

The taxes that were raised in the early 1990's were regressive taxes, such as the sales tax, which fall most heavily on middle- and lower-income families.

But when the time came to cut taxes, it wasn't the sales taxes that were pared back towards their original levels.  Instead, taxes were cut that fall most heavily on upper-income families.

To put some numbers on this:

A family earning, say, $30,000 per year pays considerably more in state taxes than a family with the same constant-dollar income did in 1990, while a family earning $600,000 per year pays considerably less.

The net effect is "a redistribution of the tax burden away from the haves towards the have-nots."

Shifting the Tax Burden Away From the Wealthy: Federal Level

During the reign of that great champion of the common man, Ronald Reagan, payroll taxes were increased.  The purpose was to ensure the integrity of the Social Security system by generating a surplus that could be tapped to pay benefits to an increasingly elderly population.

The payroll tax is a regressive tax -- just like the state sales tax discussed above.

At the same time the regressive payroll tax was being increased, the progressive income tax -- which falls more heavily on the wealthy -- was being decreased.

Compounding the situation, the excess revenue generated from the payroll tax increase isn't being used to create a Social Security system surplus.  With the disappearance of the budget surplus, the excess revenue is simply being used to fill revenue holes in the overall federal budget  - holes which wouldn't exist absent the cuts in the income tax rates.

Columnist Krugman addresses the following question to Alan Greenspan:

Was this what Mr. Greenspan intended to raise taxes on the poor and the middle class, so that they could be cut for the rich? If not, why doesn't he say something?

Uh, maybe because that was (and of course still is) the purpose?

Such is certainly the effect: wealth distribution is terribly askew in the United States.

When we begin seeing the effect of George Bush's $1.35 trillion tax cut plan -- whose benefits, surprise! surprise! -- go mostly to the wealthy, would anyone care to hazard a guess how future shortfalls in revenues will be made up?

Might it be cuts in programs that benefit the poor and middle-class, and increases in the tax burdens of those two groups?

Nah, the American economic system is more fair than that, right?

This was a selection from The Daily Diatribe

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Economic Injustice

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