*Perhaps the most contentious issue presently facing the U.S. Congress is whether or not to extend the “tax cuts for the rich” which former President George Bush rammed down the nation’s throat in 2003. The Republicans say “yes” arguing that when we allow the wealthiest Americans to keep more of their money the nation is better off because the rich invest in business expansion and create jobs for the rest of us.
Many Democrats are saying “not so fast.” They argue that there is no hard evidence that the rich actually used their extra dollars for productive investment. Indeed, some progressives assert that by using the tax system to increase the wealth gap between the rich and the non-rich, the Republicans actually helped to bring about the “Great Recession” which hit the nation in December 2007.
There is also a third view – mine. This view asserts that Bush’s “tax cuts for the rich” undermined Black economic progress in America and continues to do so to this very day. This third view was supported recently in an excellent article by Meizu Lui – director of the Closing the Racial Wealth Gap Initiative at the Insight Center for Community Economic Development.
But we must first be clear about something. The Republicans like to refer to what Bush accomplished as simply “tax cuts” implying to the public that all Americans saw a reduction in their tax burden. This is a misleading and disingenuous argument. The primary beneficiaries of the Bush tax cuts were families earning $250,000 a year and above. The middle class got minor benefits and the poor got absolutely no benefit.
Specifically, the Bush tax cuts allowed the lowest income Americans to save nothing while average income Americans saved around $80.00 off their tax bills. But the top 1 percent of earners saved a whopping $42,618 a year. Thus, the Bush tax cuts did not really benefit middle income America and virtually no African American benefitted unless they were in a family earning $250,000 or more a year.
What Lui’s research shows is that as a result of the Bush “tax cuts for the rich” and other factors, minorities in recent years “have seen a staggering loss of wealth.” In 2007, for example, a Black family owned 10 cents of wealth for every dollar of wealth owned by a white family. A Hispanic family owned 12 cents.
However, in 2004, Black families owned 12 cents of wealth for every dollar owned by the typical white family. In other words, after the Bush tax cuts went into effect, Blacks lost wealth, relative to whites, between 2004 and 2007.
Lui does not argue against the Republican notion that government gives Americans an incentive to build wealth when it lowers or defers taxes on specific asset-building expenditures. But the Bush tax cuts did not do this. Instead of giving the rich a tax incentive to engage in productive investment, Bush disproportionate gave the rich a tax break for already being rich.
Further, no investment requirements were placed on the wealthy. In theory, they could have invested in China by closing down a U.S. factory throwing hundreds of working-class Americans out of jobs and reopened the factory in Shanghai and still got the Bush tax cut.
Already, President “too quick to compromise” Obama is hinting that he is open to a deal with the Republicans which would involve extending the “tax cuts for the rich” a few more years but not making them permanent. This is a great mistake! Any compromise on the issue will simply further widen the wealth gap between the rich and the non-rich as well as that between whites and Blacks. African Americans would become a poorer people.
President Obama and the Democrats should not compromise with the Republicans. Let the “tax cuts for the rich” expire and this will be a better and more equal nation for everyone.