High Gas Prices
Republicans Respond with Tax Cuts for Rich
San Jose, CA – When the price of gasoline spiked above $3 per gallon, Republicans responded by proposing a $100 rebate. This was widely condemned as a public relations stunt at best and an insult at worst as working families are weighed down by high gas prices, rising interest rates and cuts in pensions and health care. But you don’t hear complaints about the Republicans coming from the rich.
Why should they? Republicans in the House of Representatives and the Senate have given them another tax cut, by extending the lower taxes on stock dividends and capital gains for another two years (2009 and 2010). This will mainly benefit those making more than $200,000 a year, the group that receives about half of all stock dividends and three-quarters of all capital gains. The average taxpayer, making $36,000 a year, will get their taxes cut by an average of $20 per year, and only one-fifth will see any tax cut at all. However wealthy taxpayer making $5 million a year will receive a tax cut of $84,000!
The Republican tax cut also limits the Alternative Minimum Tax (AMT) for another year. The AMT was originally passed after people found out that some wealthy individuals were not paying any federal income taxes at all because of all the loopholes favoring the rich. Because the AMT is not adjusted for inflation, more and more high-income, but not wealthy, families have been affected. Taxpayers earning $100,000 to $500,000 will get almost all the benefit from the AMT fix. However, rather than adjusting the AMT for inflation, Bush and the Republicans use the AMT issue as a way to cut taxes for the rich every year.
Even worse, this latest tax cut contains a sneaky provision that raises about $6 billion in tax revenue over the next five years, but then gives individuals earning more than $100,000 a year $100 billion in tax cuts over the following 35 years. This loophole will allow these high-income families to use Roth IRAs that protect their income from future taxes.
Not only are the Bush tax cuts grossly unfair, but they also raise the possibility of a financial crisis in the future. The growing federal budget deficits caused by the tax cuts and the occupation of Iraq have been mainly paid for by selling government bonds to foreigners, who now own almost half of all bonds held by the public. In fiscal year 2005, foreign investors and central banks bought bonds equal to 70% of the federal government’s budget deficit. When (not if) foreign investors and governments decide not to buy so many U.S. government bonds, this could lead to higher interest rates and a falling dollar, which could lead to higher inflation and unemployment at the same time. Such a crisis would hit working people who are living paycheck to paycheck the hardest. At the same time the government budget deficit would grow even larger due to lower tax payments, and this would be an excuse to try to cut the so-called safety net even more.