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The Rich Deserve That Bigger Tax Break

February 11, 2001|RALPH R. REILAND | Ralph R. Reiland, a professor at Robert Morris College in Pittsburgh, is the co-author of "Mom & Pop vs. the Dreambusters: The Small Business Revolt Against Big Government" (McGraw Hill, 1999). E-mail:

Revving up the old class warfare machine again, Senate Minority Leader Tom Daschle is howling about Republicans getting free luxury cars while America's les miserables Democrats are stuck trying to patch up their old clunkers.

"If you make $1 million a year," Daschle declared, "under the Bush plan your tax cut would be big enough to buy a new Lexus. If you're from an average working family, you can get a new muffler for your used car."

What Daschle didn't say is that the guy buying the Lexus is spending his own money, not a federal hand-out. Additionally, Daschle didn't bother to mention that "the rich" will continue to pick up a highly disproportionate share of the tab each year to keep the federal leviathan on track, with or without the Bush tax cut.

Internal Revenue Service reports show, for instance, that the top-earning 1% of families (annual incomes of $297,000 and more) earn 15% of total national income and pay 34% of all federal income taxes. Similarly, the top 5% (incomes of $145,000 and more) earn 32% of the income and pay 52% of the taxes, and the top 10% and 25% pay, respectively, 63% and 82% of all income taxes. All told, the top half pay 96% of all federal income taxes while the bottom half picks up 4% of the tab.

It's true that those at the top of the income pile, even with the proposed smaller percentage cuts in their tax rates than those planned for middle- and lower-income groups, will still reap the largest benefits, in dollar terms, from the Bush tax plan, simply because of the bigger numbers at the top. A 50% cut on a $1,000 tax bill yields fewer dollars than a 10% cut on a $200,000 bill.

At the very top, say a lucky couple making $950,000 a year, what the Bush tax plan means is an annual tax cut of $43,517, according to an analysis provided by Deloitte & Touche--a "free" car in Daschle's book, but only if you begin with the notion that the state has first rights to our life and work. And the tax bill on that $950,000, just in federal income taxes, not counting state and local levies, even after the Bush cuts? More than $258,000--enough, clearly, for a few nice cars and drivers at the Senate, so that guys like Daschle can enjoy a free ride around Capitol Hill.

Bottom line? The rich, plainly, are not the group that's getting the complimentary trip, contrary to the red meat rhetoric that's tossed into the ring by class warriors like Daschle. The game Daschle plays is one of exciting envy, pointing to shiny new LX-470s and crummy old mufflers, seeking to divert attention away from the fact that we all pay too much in taxes, that taxes have grown faster than incomes for the past eight years, that the federal budget has exploded to more than 17 times its 1960 size, after adjusting for inflation, and that non-defense discretionary federal spending this year, in an economy with near-zero growth, is set to jump another 13%.

Simply put, according to the Tax Foundation in Washington, our tax burden averaged out to $10,298 per person last year--$7,026 in federal taxes and $3,272 in state and local taxes. Add the price of regulations and government-sponsored litigation and we're half-socialized.

Altogether, it's a tab for government, as Doug Bandow, a senior fellow at the Cato Institute, said, that "dwarfs everything else in people's budgets: shelter ($5,833); health care ($3,829); food ($2,693); transportation ($2,568); recreation ($1,922); and clothing ($1,404)."

Bush's solution? Double the child tax credit from $500 to $1,000, phase out the "death tax," reduce the "marriage penalty tax" and cut income tax rates across-the-board.

Daschle's answer? Grab the wallet of anyone who can buy an LX-470 with his own money.

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