My Own Personal Tax Revolt
We recently did our taxes and this year, for the first time, we actually have to pay. Teresa actually made slightly less than the year before, but I made a lot more because I actually worked 40 hours a week at the U for most of the year. (For some context: “full time” for a grad student is usually 20 hours a week, so this is pretty unusual; I had to get special permission from my advisors and the department, etc.) The extra income was great, of course, but it pushed us up into a higher tax bracket. What’s annoying is that right now, when we actually have to pay the taxes, we’re not making nearly as much money: I’m back to “normal full time” for a grad student at 20 hours a week and Teresa’s on (unpaid) maternity leave. We’ll be fine, of course, and come next year this time, thanks to decreased earnings this year along with our cute new little tax deduction otherwise known as our daughter, we’ll probably once again rejoin the ranks of those who look forward to doing their taxes so they can get money back.
Anyway, this situation got me to thinking about the (now past us?) “Tax Revolt” era in American politics. I could almost hear Ronald Reagan whispering in my ear, “See how crazy this is? You’ve got an incentive to not work hard? The government is taking your money to fund this disastrous, immoral war in Iraq…” Ok, so Reagan wouldn’t have added the last part, but my point is that I could completely see why the “cut taxes, cut taxes, cut taxes” strategy of the Republican Party appealed to so many working and middle class people. Unfortunately, it was a lie: Republican policies did little to help the working and middle classes, and were instead a highly effective propaganda campaign by the ultra rich to drastically cut their own taxes and “starve the beast” of democratic government. The tax squeeze for the middle class, however is a legitimate point.
I don’t think people realize just how much Reagan era policies were all about cutting taxes for the rich and sticking everyone else with the cost. The numbers are pretty shocking. When JFK came to office, the rich paid 90 percent on income over $200,000. (That $200,000 is comparable to $2 million today.) By 1965, Kennedy/Johnson had cut this top rate down to 70%. Reagan came along 20 years later and cut this top rate down to 50%, then 38% and finally 28%.* That’s a lot of money taken out of the tax pool, and we all know that the conservatives have not been nearly as successful at cutting spending as they were cutting taxes, so the middle class has picked up the slack. Here’s a story from the StarTribune breaking down the relative tax burden for Minnesota’s middle class vs. wealthy tax payers:
As a percentage of income, Minnesotans who made between $40,000 and $70,000 in 2004 paid the most in state and local taxes — 12.3 percent. That’s compared with a state average of 11.6 percent. In 2004, those making more than $700,000 paid 9.2 percent while those at the very top paid 7.8 percent…
According to the latest state tax incidence study, by 2009 the richest 1 percent of Minnesotans – those making more than $1 million a year – will pay 8.9 percent of their income in state and local taxes. By contrast, those who make between $34,000 and $52,000 will pay 12.5 percent in total state and local taxes. The study is based on 2004 data.
* My source on all of these numbers: Chapter Five in Robert Schaeffer’s “Understanding Globalization: The Social Consequences of Political, Economic & Environmental Change.” (amazon link)