 Our
capitalistic democracy is all skewed up
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Congress passed new tax legislation recently chock-full
of provisions that primarily benefit rich folks in America. I imagine
members of Congress raucously slapping one another on the back,
congratulating themselves for a job well done. You can't hear the
cry of the poor for all the racket.
The centerpiece of the Tax Increase Prevention and
Reconciliation Act, or TIPRA for short, provides for a two-year
extension of the 15 percent top rate on long-term capital gains
and corporate dividends. Now they will remain in effect through
2010 instead of expiring after 2008.
What was the urgency of passing this measure now?
"The real deadline motivating Congress was Nov.
7, the midterm election day," observes Bankrate's tax writer
Kay Bell, who blogs daily in Don't
Mess with Taxes. "There's concern on the Hill that if the
capital gains extension wasn't passed now, there might not be enough
GOP supporters in the next session to get the job done."
The bill, which the president has promised to sign,
will mostly benefit the top echelon of wage earners. The Urban
Institute estimates that households earning more than $1 million
will reap the lion's share of the benefits. "Middle-income
households would receive an average tax cut of $20; low-wage workers,
about $2," according to the institute.
The "trickle-down effect" that economic
theorists always bring up is really nothing more than a teeny tiny
drip for folks on the low end of the wage scale.
The bill also provides for relief of the alternative
minimum tax to a growing number of so-called middle-income Americans.
The ones most likely to get hit with AMT are those earning between
$200,000 and $500,000 a year, Leonard Burman, director of the Tax
Policy Center, told The Wall Street Journal last week.
In addition, wealthy Americans will have a window
of opportunity after 2010 to convert their traditional IRAs to Roth
IRAs. Currently only households earning $100,000 or less can make
these conversions. Traditional IRAs, funded with money that's deductible
on the front end, are taxed at ordinary rates at the time of withdrawal.
Contributions to Roth IRAs are not deductible, but earnings grow
tax free and distributions are normally not taxed upon withdrawal.
Ironically, this last provision was supposed to be
a revenue-generator, intended to help offset the costs of other
provisions in the bill. But analysts say this short-term fundraising
effort relies strongly on "smoke
and mirrors" gimmickry, since the U.S. Treasury ultimately
would stand to gain much more revenue in the long run from withdrawals
made from traditional retirement plans.
The suffering populace
So what are our congressional leaders doing for those at the very
bottom rung of the wage ladder? The answer is: not a whole lot.
Those who are most vulnerable and least able to exert influence
are obviously not uppermost on collective congressional minds.
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