Let me guess – you already knew that, right? Because you can feel it in your pocketbook. From the New York Times:
Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that they had to make ends meet with less money than at the peak of the last economic expansion, new government data shows.
Of course, there were some folks that made out like bandits over the last five years: those making more than $1 million:
The number of such taxpayers grew by more than 26 percent, to 303,817 in 2005, from 239,685 in 2000.
These individuals, who constitute less than a quarter of 1 percent of all taxpayers, reaped almost 47 percent of the total income gains in 2005, compared with 2000.
And what about the masses? Well:
Nearly half of Americans reported incomes of less than $30,000, and two-thirds make less than $50,000.
I have never understood how so many people argue in favor of eliminating the estate tax, when it affects so few. I have never understood how so many people argue in favor of a favored tax rate on capital gains and dividends, when it affects so few. Two thirds of Americans make less than $50,000! By nearly any measure out there, that is far from rich.
Years ago, I asked an economist how it was that the American public bought into the idea that if they aren’t rich now, someday they would be, and, therefore, they wanted favorable tax treatments for the rich. He said he had no idea.
I don’t, either.
VIVIAN J. PAIGE | All Politics is Local 
I have never understood how so many people argue in favor of eliminating the estate tax, when it affects so few…
And I have never understood how a nominally Christian nation, with fully 80% of us professing belief in the same God, do not understand “thou shalt not covet thy neighbor’s property.”
The income tax itself was sold to us because it would only affect “so few”.
Years ago, I asked an economist how it was that the American public bought into the idea that if they aren’t rich now, someday they would be, and, therefore, they wanted favorable tax treatments for the rich. He said he had no idea.
There is plenty of evidence that the strata of rich and poor are dynamic. Your own example above shows 100,000 new millionaires in 2005. There are also millionaires who fall off of that list every year and are replaced by other people. Many who are in the poorest 10% rise to middle class. Some in the middle class go bankrupt and start over. It would take a truely hopeless and pitiful individual who could not entertain at least the hope that he will be better off next year than he was last year. It would take a cynical and cruel politician to tell such a person that the way to happiness is to punish anyone who is better off than he is.
Why so many? Because so many get that it is what capitalism is based on, and they are working their tails off so that one day that can be part of the millionaire club.
I would like to know, and I trust your answer because you are an honest liberal, were these numbers based on gross income or take-home income or net income? It makes a difference.
Ha ha haahaha haha ha.
But maybe I shouldn’t laugh. That riding a donkey with a carrot tied to a string in front of it has worked for a good long while, now.
The IRS data is generally based on adjusted gross income. AGI is total income (i.e., gross W-2 wages, interest & dividends, net business income, etc) less a few deductions (such as alimony, self-employed health insurance) and comes from line 37 on the 2006 return.
I understand believing in the American Dream: work hard, get ahead. I think that for many, though, the American Dream is not their reality.
Once again, a fundamental misunderstanding of the entire issue of taxation from conservatives.
Taxes are what was used to build the entire infrastructure that you enjoy today. Do you think bridges build (or fix) themselves? How do you think those satellites that connect so much of our lives got up there? Libraries, schools, fire departments, police, military, all funded by your tax money. We use the common wealth of the people for the common good. Sorry, but that’s the system, and that’s why our nation is (was) so strong.
The progressive tax system, also long a fixture of America and which Republicans now wish to destroy, rests on a pretty simple premise. Those who use the public goods the most and have benefited the most should give more back to it. That’s called “fairness.”
You can keep trying to cloud the debate with nonsense about “punishment” or whatever is the talking point this week, but it all comes down to this notion of using the common wealth for the common good. The reason we have such shocking economic disparity and third world conditions in the richest country in the world is because of conservatism, plain and simple.
I agree that taxes are required. I also agree that infrastructure paid by taxation is in most cases a better way to build and maintain it.
Those who use the public goods the most and have benefited the most should give more back to it.
This is where we fall away from each other. You assume that a successful wealthy person is that way because he benefits more from public services than poorer Americans. You really have to twist reality to come to that conclusion. The man in the penthouse and the guy in the lower floors of the same building benefit the same from the fire department showing up. Likewise, when the police arrest a criminal, every future potential victim benefits alike from the criminal not harming them. If anything, one might argue, using the same “progressive” tax argument, that the poor benefit even more, since they are more likely to be victims of crime and they can least afford the financial losses arising from property crimes. So should they be taxed higher to pay for those services?
There are lots of different taxes in the USA. Some like the gasoline tax, do a really good job of associating those who benefit (drivers)with those who pay (people who buy gasoline). The inheritence tax is the only one that specifically taxes only people who are wealthy, in terms of accumulating a lifetime of earnings, all of which were already taxed. It is a punishment, born of greed. It is inherently un”fair”. It encourages wasteful spending in the later years of life. It encourages hiding the wealth in shelters and foundations. It encourages wealth to go offshore to hide it from the grasping hands of government.
The fact is, it isn’t yours. You do not have a right to other people’s money. Getting a law passed does not make theft right. The deceased have already paid their taxes, all their lives. How they dispose of thier assets after death is none of your business.
If your logic is so good, then why not propose a 95% tax on lottery winnings? After all, that would affect even fewer people, and they did even less to earn it. Think of all the poor people you could help with that.
The progressive tax system, also long a fixture of America and which Republicans now wish to destroy
Actually, I think it is the libertarians who want to destroy the progressive income tax. Republican politicians benefit every bit as much from the current system as Democrats.
Funny – I use this analogy all the time. I even have a picture of a carrot hanging from a string up on my wall.
And this is the biggest lie in the argument about estate taxes. The principal amount has already been taxed, but not the earnings.
When you buy a stock and sell it, you pay tax on the gain. When someone dies, the gain HAS NOT been taxed. That is what the estate tax attempts to capture. The same tax on gains that everyone else pays.
And then there is the stepped-up basis. The beneficiary get as his investment in the stock the value on the decedent’s date of death (or alternative valuation date).
I have absolutely no problem with an increase in the amount of an estate that is exempt from the tax or even indexing that amount. (It probably should be somewhere between $3million and $5million.) But to do away with it completely puts one group of people (and a very small one, at that) at a distinct advantage over the rest of us.
$280 million is what it is projected to cost VA over the next biennium due to the early elimination of the estate tax.
I say if you want to eliminate the estate tax, the tradeoff has to be that when the stuff passes to the heirs, let the basis pass to them, too, just like it does when they make a gift. At least that way, we have a chance of them paying taxes on the gains.
“How do you think those satellites that connect so much of our lives got up there?”
The communications satellites are mostly private.
“The progressive tax system, also long a fixture of America…”
The 16th Amendment was ratified in 1913. We have had federal income taxes for less than 100 years. I am happy to say that not only did Virginia not ratify this abomination, we never even considered it. I do not know when Virginia itself started an income tax.
“Those who use the public goods the most and have benefited the most should give more back to it.”
How does a rich man’s vehicle need more road than that of a poor man? Are there more police patrolling the rich neighborhoods, or the poor ones? Is a rich man’s house more likely to burn down? Which will have his house properly insured — the rich man or the poor man? Granted, the rich are more likely to use libraries, but they are less likely to use public schools.
Also, we are not talking about “giving,” but about taking. It is not even taking BACK, because the rich did not get their money from the government in the first place.
My definition of “fair” is getting what you pay for.
“[It] all comes down to this notion of using the common wealth for the common good.”
That’s just it — a man’s wealth is his, not the governments’. It is not “common.” (Also, we’re not talking about a wealth tax, but an income tax.)
“The reason we have such shocking economic disparity and third world conditions in the richest country in the world is because of conservatism, plain and simple.”
The first is quite correct. Our economic disparities ARE the result of conservatism. Those who have contributed the most (by creating jobs and by offering better products for equivalent prices or equivalent products for better prices) have been rewarded the most. When a farm owner spends his money to buy a better combine, should he pay his combine driver more? No — the farmer has taken the financial risk, and should reap the reward. That is the system that has allowed us to be the nation we are, and we are the richest in the world because of it.
Tell me, in what nations is the major health problem of the poor OBESITY?!
Vivian, that was an insightful look at the estate tax. I think your last paragraph expresses what I think would be a good idea.
As far as the original post, is it possible that with an aging population there are more people either retiring or moving into part-time work/partial retirement? Or could people staying in school for more years lower average annual incomes? Could those lifestyle changes cause the average income to go down, while not actually indicating lowering standards of living or wealth? I’m not sure, but it’s just a few possible explanations, without further details on what the statistics are really showing.
“Why so many? Because so many get that it is what capitalism is based on, and they are working their tails off so that one day that can be part of the millionaire club.”
That’s a nice story with a happy ending, but it begs the question why those folks saw a measurable decrease in their average income, doesn’t it? A fundamental part of our American identity is the belief that if you work hard, you’ll get ahead. Why are folks falling behind?
Why are folks falling behind?
Who can say? Some folks are always falling behind while others are getting ahead. The real question is: what right do government bureaucrats have to decide who is far enough ahead and who is too far behind, without regard to the choices each have taken to put themselves in that position?
As for the argument that it is only a few people… “Injustice anywhere is a threat to justice everywhere”.
It is, on the face of it, unjust to tax the wealth earned over a lifetime at the moment it passes to heirs. It was already taxed once. Your own argument about thresholds (It probably should be somewhere between $3million and $5million) demonstrates that you don’t want this for some heirs, only for wealthy heirs. That makes it a punishment, targeted at people you don’t like, or at least have no empathy with. If you want it “fair” then apply it to everyone. Otherwise you are simply using the power of the state to bring others low.
I understand that there are lots of people who enjoy watching other people punished, but it should never be the policy of our government to pander to such people.
I can certainly understand how people who are not rich and do not expect to become rich might still recognize the inherent injustice of a tax exclusively against the rich, in all its forms, and would seek to end that injustice. It doesn’t take an economist to understand psychology.
Roci – you obviously do not understand how the estate tax works – or you are intentionally ignoring the facts that I have given. The fact is that GAINS have NOT BEEN TAXED. The rest of us pay taxes on gains, why not estates? The amount exempt from tax takes into consideration the original cost of the investments.
The only injustice here is that rich folks want to get off scot free, never paying any taxes on their profits, while the rest of us have to.
Lumen – the problem with the tradeoff (which, by the way, has been proposed in the past and rejected) is trying to establish the original basis. We run into that problem all the time with gifts: grandma bought 100 shares of AT&T in 1950 and due to mergers, acquisitions and spinoffs, she now has various shares of 7 or 8 different companies. So she splits it up among her 10 grandchildren. Grandma dies, the grandkids decide to sell, and no one knows how much Grandma paid for the original shares back in 1950 or whether she sold some, etc.
It’s an accounting nightmare. And remember, the onus is on the seller to prove basis; otherwise, it is presumed by the gov’t to be zero.
Nice, right?
Roci: “There is plenty of evidence that the strata of rich and poor are dynamic.”
Yes, but there is also plenty of evidence that such income mobility has significantly decreased over the past 10 years.
“Many who are in the poorest 10% rise to middle class.”
Actually. No. There is very little mobility for the bottom 10% and the top 10% of income earners in the U.S.