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On October 14, Sen. John McCain rolled out his most recent “stimulus” package. Its centerpiece: cutting the capital gains tax in half during the next two years. Another tax cut for the rich. This is the latest in a long series of conservative efforts to bamboozle Americans into thinking that a tax cut for the rich will somehow help the middle class. It won’t.
Yesterday (October 14), John McCain rolled out his most recent “stimulus” package. Its centerpiece: cutting the capital gains tax in half during the next two years. Another tax cut for the rich. This is the latest in a long series of conservative efforts to bamboozle Americans into thinking that a tax cut for the rich will somehow help the middle class. It won’t.
The McCain plan to cut capital gains taxes is conservative business as usual. McCain proposes cutting the capital gains tax rate from 15 to 7.5 percent for 2009 and 2010. [JohnMcCain.com [1]] Bush and conservatives in Congress already reduced the capital-gains tax rate from 20 to 15 percent in 2003. [H.R. 2 [2]] In recent weeks, both the far-right Republican Study Committee and most Republicans in the U.S. House have called for cutting the capital gains tax in response to the financial crisis. So this proposal is the opposite of what a “maverick” would do.
Cutting the capital gains tax again would provide a huge payoff to the rich. Households earning over $200,000 a year would receive 93 percent of the benefits from the McCain capital gains tax cut. In fact, two-thirds of the tax cut would go to individuals earning over $1 million a year. [Tax Policy Center [3]] Put another way, the average American household would receive $4 as a result of the proposed cut, while households earning over $1 million would receive $72,255. [Jared Bernstein [4]]
One result: billionaires and hedge fund CEOs pay lower tax rates than their secretaries do. The 400 U.S. taxpayers with the very highest incomes pay income taxes worth only 18 percent of their income on average, compared to 25 percent for the typical American. Because of reduced capital gains taxes, the top 400 taxpayers cumulatively saved $10 billion between 1995 and 2005. [CBPP [5]] Billionaire Warren Buffet famously criticized our tax system for taxing him at a substantially lower rate than his secretary. [Raw Story [6]]
The capital gains tax is already ridiculously low. The current capital gains tax rate of 15 percent is the lowest it’s been in years. The 1986 Tax Reform Act set the top rate at 28 percent and later legislation lowered it to 20 percent in 1997 and to 15 percent in 2003. Today, the top federal income-tax rate for ordinary income is 35 percent, meaning that earned income is taxed at a rate 2 1/3 higher than income from capital gains. That’s simply unfair. There is no good reason for wealth to be taxed at a lower rate than work. [Citizens for Tax Justice [7]]
We need a real stimulus program. Invest in new energy and rebuild our crumbling infrastructure, from schools to sewers. That will create jobs here and make investments that are vital to our future. Tax cuts for the wealthy don’t work—we’ve seen that proven over the last eight years. Bush’s tax cuts generated Gilded Age inequality, while wages for most Americans stagnated and vital needs were ignored.
It’s time for progressive tax reform, not regressive tax deform. We need a fair, more progressive, simpler tax system—one that rewards hard work, not reckless Wall Street speculation. Warren Buffet is right: rich CEOs should pay taxes at a higher rate than their secretaries do. They may have to give up their seventh vacation home, but that’s better than forcing their secretaries to postpone buying necessary medicine.
1825 K Street, NW, Suite 400, Washington, DC 20006
202-955-5665 (tel) | 202-955-5606 (fax) | www.ourfuture.org
Links:
[1] http://www.johnmccain.com/Informing/News/PressReleases/6548c935-9534-40c9-b780-5c435ecc5767.htm
[2] http://www.govtrack.us/congress/bill.xpd?bill=h108-2
[3] http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=2010&DocTypeID=1
[4] http://www.huffingtonpost.com/jared-bernstein/again-with-the-trickle-do_b_134796.html?view=print
[5] http://www.cbpp.org/3-27-08tax.htm
[6] http://rawstory.com/news/2007/NBC_Warren_Buffett_wants_more_taxes_1030.html
[7] http://www.ctj.org/pdf/regcg.pdf