In the spring of 2003,1 American soldiers began massing on Kuwait's border with Iraq, preparing for what some experts feared could be a horrendous Iraqi counterattack2 should President Bush order an invasion. It was a tense time in a nation both on the verge of war and strapped for resources to defend itself against terrorism thanks to massive budget deficits.
Every day, it seemed, there was a reminder of how serious the situation was. Color-coded alerts warned that another 9/11 could occur at any moment, as police and fire departments reported severe budget shortfalls; more than a year after the World Trade Center attacks, air marshals were still protecting only a fraction of the 35,000 daily flights in the United States;3 in an urgent plea to the White House, federal officials warned that budget shortfalls were leaving the nation's nuclear material dangerously unprotected from al Qaeda;4 and possibly worst of all, many soldiers awaiting the command to invade Iraq did not have adequate body armor to protect them.5
So when House Majority Leader Tom DeLay (R-TX) gave a major speech on March 12-just weeks before the invasion-the average onlooker might have expected a demand for national sacrifice, a patriotic call to make sure the country was protected and our troops were safe. Instead, we got a glimpse of just how far our political leaders will go to reward the wealthy.
"Nothing is more important in the face of a war than cutting taxes," DeLay proudly declared.6 Nothing? Not securing our country, not preventing another 9/11, not protecting American troops heading into battle? No, to DeLay, the impending violence was just another excuse to reward the rich donors who fund political campaigns.
You might think this comment was the strange babbling of an unhinged lunatic and was greeted with outrage or at least dismissive scorn. You would be half right: the source of the comment was, in fact, a babbling fool-Tom DeLay is the same slime who, according to his hometown paper, justified dodging the draft during Vietnam by claiming he really wanted to join up but was unable to find a spot because too many poor minorities were enlisting.7
But in today's Washington, the absurd notion that cutting taxes is the noblest and most important mission of the government-even in a time of war-is so commonplace that few reporters thought DeLay's comments newsworthy enough to write about. Big Money's Hostile Takeover of our political system has made DeLay's logic the rule, rather than the exception.
Look, no one likes paying taxes, and everyone wants them lowered. But at the end of the day, we have to pay for things we need-things like roads, bridges, schools, police, firefighters, national security, and the military. The ever-present question, then, is not whether taxes need to be paid, but how they should be paid and by whom.
By the beginning of the twentieth century, America seemed to have reached a consensus answer. As Christian Science Monitor columnist David Francis noted in 2003, the United States opted to "rely on a simple rationale: the well-to-do pay a larger share of their income in federal taxes than the rest of Americans, because the rich can afford it." In return, "the government protects their wealth and property."8 Thus, the birth of a progressive income tax structure. It seemed simple enough-the Rockefellers and the Mellons would pay a higher tax rate than their servants because they could afford to. In return, the wealthy were the disproportionate beneficiaries of a safe, secure, well-run national infrastructure.
The income tax on corporate profits was also established at the beginning of the century-a simple way to make sure business does its fair share. Then, in 1916, the estate tax was created.9 This one-time levy on inherited wealth above a certain (very high) level fell almost exclusively on the rich, raised money for social programs, and was supposed to prevent the kind of hereditary aristocracy that had mutated into corrupt governing royalty in so many other parts of the world.
The system was, in short, government intervention at its best-demanding that everyone throw in what they can. Lower tax rates at the bottom-which minimize the barrier to the middle class-were financed by higher rates for those at the very top who had already made it.
And then, slowly but surely, arguments opposing this perfectly functional system began to take hold. At first they were promoted only by a small coterie of tax-cutting zealots who possess a cultish devotion to the idea that allowing the superwealthy to accumulate more wealth is the highest economic good. But soon this crusade to change our tax code found converts in the highest levels of government. And the result has been a tax structure flipped on its head.
Using everything from subtle loopholes to brazen cuts targeted at the wealthy, moneyed interests have used huge campaign contributions and lobbying resources to transform a once-progressive system into one with one single goal: making the rich richer. During the Reagan era, the top 10 percent of the population saw its effective tax rates plummet, while almost every other segment of the population saw an increase.10 During the George W. Bush era, things got much worse. In Bush's first term, he gave the top 1 percent of the population (those who make an average of $1 million a year) more than a half-trillion dollars' worth of tax cuts.11 Meanwhile, the bottom 60 percent of the population-who make below about $42,000 a year-got about half of that.12
This kind of greed has been replicated at the state level. In 2005, for instance, Texas Republican legislators pushed a bill that would raise taxes by more than $1 billion a year on people earning less than $100,000 a year, in order to finance a half-billion-dollar tax cut for people earning more than $100,000 a year.13 As the Houston Chronicle reported, the largest political donors to that cause were "the businesses [and individuals] that receive the biggest tax breaks."14
The elimination of corporate taxes has also been remarkable. Corporations have used the courts to win many of the same rights to free speech and legal protection as individual citizens. Yet they are allowed to simultaneously shirk the responsibilities of citizenship-especially that of paying taxes. Big Business argues that corporate taxes must be eliminated in the United States to keep American companies competitive with companies based in Third World tax havens, as if we should blindly engage in a race to the bottom for status as the world's biggest and best corporate banana republic.
In truth, the whole argument is designed to increase Big Business's bottom line at the expense of individual U.S. taxpayers, who are forced to shoulder an ever increasing and disproportionate cost of America's economic infrastructure (roads, bridges, security, defense, energy, patent enforcement, etc.)-much of which serves Corporate America. Between 1996 and 2000, ten large companies raked in $50 billion in corporate tax breaks. These run the gamut from tax breaks for stock options, to abusive offshore tax shelters, to specialized tax breaks for certain idiosyncratic activities granted by bought-off politicians.15
Hundreds of millions of dollars in taxes are dodged by other companies through smaller loopholes. By 2004, Big Business did not even try to hide the mockery it was making of the tax code. A bill that year designed to fix a small export tax problem was seized on by Congress as a prime opportunity to pass scores of narrow special-interest tax breaks for politicians' corporate donors: $92 million for NASCAR track owners, $189 million for Oldsmobile dealers, and $64 million for those who sell horses.16 There was even a $25 million break for the dog and horse track gambling industry.17 Meanwhile, American companies and individuals are being allowed to buy mailboxes in offshore tax havens, claim they are thus no longer "American" companies even though their operators are here, and then avoid paying up to $70 billion they owe in taxes.18
Politicians fuel this bonanza because they have a stake in it. Major donors to both political parties tend to be very wealthy individuals or very wealthy corporations. These are the same people and interests who stand to gain the most out of a tax policy rigged to reward the wealthy. Thus, a politician knows that if you give the rich or a corporation a new tax break, some of that cash will likely make it back into that politician's own campaign coffers. Just ask George W. Bush: his tax policies gave a total of $1.6 million in new tax cuts to his six top money men, and they returned the favor by raising him more than $1.4 million.19
On some issues, lawmakers actually have an even more personal interest in soaking the rich: their own bank account. Take the recent proposal to repeal the estate tax. Because the current law exempted the first $1 million of assets, repealing it would exclusively reward the richest one-half of 1 percent of America with billions of dollars-and would give almost nothing to everyone else. But repealing it also would give a huge chunk of change to about one in five elected officials in Washington, as roughly a hundred members of Congress are multimillionaires. The president and vice president, who aggressively support the proposal, would save their families roughly $6 million and $10 million, respectively.20
And then, of course, there are the lobbyists who game the process. According to the Center for Responsive Politics, there are 4,000 registered lobbyists in the nation's capital21 who list taxes as one of their specialties. In terms of sheer manpower, this army could rival many "coalition" countries' forces in Iraq. These sharks are armed with the best propaganda and the fattest checkbooks to intimidate and cajole lawmakers into doing their bidding. In Washington's corporate feeding frenzy, lobbyists now jokingly equate their manhood with how big a loophole they are able to weave into tax bills. "Any lobbyist worth his salt has something in this [tax] bill," one lobbyist told the Washington Post, as Congress was passing a $136 billion corporate tax cut. The shakedown, he bragged, had "risen to a new level of sleaze."22
It is this sleaze, however, that is packaged in populist rhetoric and myth-all designed to force average Americans to pay an ever-increasing tax burden to sustain the lifestyles of the rich.
myth: Tax cuts mean lower taxes for average Americans.
During the 2000 election campaign, George W. Bush knew that in order to sell his tax cuts, he would have to convince working-class Americans they would be getting most of the benefits. "By far the vast majority of [my tax cut] goes to people at the bottom end of the economic ladder,"23 he said during the second presidential debate.
This turned out to be a straight-up lie. According to the nonpartisan Citizens for Tax Justice, when Bush's tax cuts are fully implemented in 2010, the top 15 percent of income earners will have received roughly two-thirds of the tax cuts, with the top 1 percent of Americans receiving almost $600 billion in tax cuts. The bottom 60 percent of Americans will receive less than 18 percent of the total benefits.24
President Bush, we later found out, knew all his talk of tax cuts helping the average Joe was malarkey. According to journalist Ron Suskind, White House aides started pushing a new round of tax cuts for the wealthy in 2002. "Haven't we already given money to rich people?" Bush asked, acknowledging that he knew exactly whom his policies were benefiting.25
"Not enough" was the apparent answer. He soon introduced a bill eliminating all taxes on dividend income (aka money made from stock and bond holdings), an even bolder giveaway to his Big Money donors than before. The White House repeatedly claimed "92 million taxpayers would receive, on average, a tax cut of $1,083" under the legislation. The key word was average. In reality, 80 percent of taxpayers will receive less than $1,083, with most Americans getting an average tax cut of just $226. The reason the average was so high was because those who make $1 million or more will get more than $90,000 each.26 It was the equivalent of putting Bill Gates and his $2 billion next to a broke homeless person and claiming the average net worth between the two is $1 billion. It is true-but it is also misleading.
It would have been just bad if ordinary people simply did not receive tax cuts they were promised. But the story gets worse: many Americans not only were cut out of the payday, they actually got a tax increase. In 2004, the Christian Science Monitor analyzed the net effect of Bush's tax policies and found "millions of American individuals and businesses face tax hikes" that "will shrink or even possibly wipe out the savings" that the White House had promised would come from its tax cuts."27 A few months later, the Washington Post reported that in Bush's first four years, the top 1 percent of income earners-those making an average of more than $1 million a year-saw their share of their federal tax burden drop substantially, while the middle tier of income earners was forced to shoulder more.28
This reverse Robin Hood phenomenon was fueled by two things. First, the "tax-cutting" Bush administration quietly raised federal fees to suck billions out of ordinary citizens' pockets.29 In Washington-speak, fee is another word for tax. These are all those charges you have to pay when you enter a national park, or when you apply for your veterans' medical benefits, or when you get on an airplane. And here's the kicker: because fees are the same for everyone regardless of income, they hit people with less money the hardest.
Second, Bush's policies forced states to raise taxes on the middle class by almost $22 billion since he was elected.30 Here's what happened: the huge deficits Bush's federal tax cuts created became a justification for the White House to cut federal grants to states under the guise of "necessary belt-tightening." These cuts came at the very same time the White House passed a slew of laws that forced states to spend more money-without giving them the money to spend. According to Stateline, the publication that tracks state politics, these "unfunded mandates" cost states more than $50 billion from 2004 to 2005 and over the coming decade will cost states another $300 billion.31 That money doesn't just magically appear. It comes from state and local tax increases,32 and not only in "blue" states headed by "liberal" Democratic governors. In recent years, Republican governors in "red" states like Arkansas, Idaho, Ohio, and Texas have raised taxes and fees on their citizens to deal with budget shortfalls.33
At the same time, local property taxes-which fund priorities like education and police-rose by more than 10 percent.34 Those increases were making up for Bush's cuts to law-enforcement programs35 and refusal to adequately fund his own No Child Left Behind education bill-moves the White House said were necessary because of deficits, deficits that Bush's tax cuts created.From the Hardcover edition.
Excerpted from Hostile Takeover by David Sirota. Copyright © 2006 by David Sirota. Excerpted by permission of Broadway Books, a division of Random House, Inc. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.