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Friday, 11 July 2014 07:10

More Than $6.5 Trillion Lost in US Income Due to Tax Cuts for the Rich

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trickled453(Photo: David_Shankbone)

David Cay Johnston, a renowned economic journalist covering tax issues, recently asserted that approximately $6.6 trillion in income for US earners has been lost since 2000. It just disappeared.

Why did it vanish? Here is how Johnston explains it in a July 9 Al Jazeera article:

I calculated that enormous figure by comparing the average income Americans reported on their 2000 tax returns with what they reported each year for 2001 through 2012, adjusting for inflation and the growing population. Add up the income for 12 years and it turns out to be $6.6 trillion less than if we had maintained the prosperity of 2000 for a growing population.

Why use 2000 as a benchmark? Well, first off, it marks the end of one era and the start of another. More important, that very good year economically was when George W. Bush, running for president, said American prosperity would get even better if he was elected and his tax cuts — key aspects of which he kept secret until after the election — would ensure American prosperity.

The results: The prosperity of the prior decade was lost. Job growth fell far behind population growth. The median wage (half make more, half less) has been mired since 1998 at a bit more than $500 per week. 

So how does this impact taxpayers overall? Johnston puts it this way:

In 10 of the 12 years when the Bush tax cuts were in effect, the average income shown on tax returns was lower than in 2000. In the two upside years, average income rose modestly, up $504 for 2006 and $1,744 for 2007.

Total those 12 years and the net shortfall per taxpayer comes to $48,010.

Consider what $48,000 of additional income over those 12 years would have meant to you. It is the equivalent of $11 appearing in your wallet every morning from the start of 2001 through the end of 2012.

Johnston explains why such economic discontent lingers among the working class: "As I reported in an earlier column, the average real hourly wage is now 6 percent smaller than in 1972 and 1973. Of the total national increase in income in 2012 over 2009, an astonishing one-third went to just 16,000 households, and almost 95 cents of each dollar went to the top 1 percent, while the bottom 90 percent lost ground."

It is important to provide some context to Johnston's analysis of Internal Revenue Service (IRS) data. Advocates of so-called trickle-down economics have grounded their thinking in the idea that the entire pool of US wage earners benefits financially when the rich get increased tax cuts. According to Johnston, however, this is disproven by actual IRS statistics. Quite the opposite has happened to US workers; more than $6.5 trillion has gone missing from the incomes of those who are not wealthy. Meanwhile, the rich are getting richer because of enormous tax cuts and a record-breaking stock market.

Remember that the high-speed acceleration of tax cuts for the richest US citizens started with Reagan, but Bush put them into overdrive. Johnston points out how Bush sold the mugging of the US Treasury as a boon to the economy:

In a December 1999 speech to Iowa voters, the future President Bush vowed, if elected, to put into law a “tax cut designed to sustain our nation’s prosperity — and reflect our nation’s decency … The entrepreneurs of America create jobs, take risks and make their profits with honor. My tax cut plan will expand their ranks by encouraging American enterprise … Low tax rates are a powerful economic tool to promote a higher standard of living for all Americans.”

Of course, like true snake oil salesmen, Bush and his fellow plutocrats made off with the money - and continue to do so - as the purchasers (the voters) of the magic elixir are left holding the bill.

As a result, trickle-down economics has proven to be nothing more than a $6.6-trillion drainage ditch in lost income for those who need it the most.

Copyright, Truthout. May not be reprinted without permission.