The Welfare Kings: Temporary Assistance to the Needy Rich (Republicans)

[BurtWorm]

http://www.tompaine.com/articles/2006/05/10/the_welfare_kings.php

Dean Baker
May 10, 2006

Dean Baker is the co-director of the Center for Economic and Policy Research. He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer.

At a time when tens of millions of workers are struggling to pay for gas for their car, electricity for their home, and medical care for their families, the Republicans have stepped forward with a plan to help. They want to give another $20 to $30 billion in tax cuts to the rich.

This temporary assistance to the needy rich (TANR) takes the form of a 2-year extension of a tax cut that made the maximum tax rate on stock dividends and capital gain income 15 percent. While tens of millions of ordinary workers pay income tax rates of 25 percent on their wages, the Republicans argue that Bill Gates and his billionaire friends shouldn’t have to pay taxes at more than a 15 percent rate. Most of this tax break goes to the richest 1 percent of the population. This is because they hold most of the country’s stock—and even when middle income people hold stock, it is usually in retirement accounts, which are not affected by this tax cut.

The Republicans don’t argue that rich people should pay lower tax rates just because they are rich. Republicans—and many Democrats—argue that rich people should pay lower tax rates because they get their income from owning stock instead of working for a living. They argue that taxing income from stock is morally wrong because it is “double taxation.” They also argue that it is bad for the economy. Neither claim makes much sense.

The argument that taxing capital gains and dividends is double taxation is that profits are taxed once when a corporation declares its profit, then again when the profits are paid out to individuals. The story doesn’t quite work, because the corporation is not the individuals who own it, it is a separate legal entity—a principle that conservatives hold to be very important in other contexts.

The importance of a corporation as a distinct legal entity in this context is that the government grants corporations all sorts of special privileges, most importantly the privilege of limited liability. Limited liability means that shareholders are not personally responsible for the damage done by the corporations whose stock they hold. The privileges that the governments grant corporations are extremely valuable. We know this because people voluntarily form corporations. They could organize businesses as partnerships, which are not subject to the corporate income tax.

[BurtWorm]

1. Kick

[AllieB]

2. Good article

Thanks for sharing.