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Let’s Get Our Priorities Straight

Focus on Helping the Middle Class, Not Tax Cuts for the Rich

SOURCE: AP/Marcio Jose Sanchez

A woman stocks up on bread at Sacred Heart Community Center in San Jose, CA, on September 16, 2010. The percentage of people living in poverty jumped for the third year in a row, reaching 14.3 percent in 2009. But all Washington wants to talk about is tax cuts for the rich.

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Perhaps in some parallel universe there’s a world where it makes sense for the country’s main economic policy debate over the next two months to be the tax cuts for the rich. After all, they’ve been the ones least hurt by the recession and the only ones that benefited from the economic growth in the years prior to the Great Recession. I suppose it’s possible that there’s an alternate universe where giving them even more tax cuts is sanity. But in our reality it’s absolutely absurd.

The economic challenges we face are myriad and daunting. The unemployment rate is hovering near 10 percent. Our energy policy is stuck in the 20th century. We’ve got crumbling infrastructure all over the place. The budget is projected to remain badly out of balance. And perhaps most troubling, the middle class is barely keeping its head above water. Tax cuts for rich people address precisely none of these pressing issues. They would actually make matters worse in some cases.

Why, then, are we even discussing the possibility of cutting taxes for rich people? Is it because they’ve been hit particularly hard by the recession? Hardly. When the National Bureau of Economic Research announced recently that the Great Recession came to an end in June of last year that news must have come as quite a shock to the millions of Americans who are still out of work, working fewer hours for less pay, and struggling to make ends meet. But it probably didn’t surprise people at the top of the income ladder. They’ve been recovering quite nicely.

Recently released Census data confirm that the wealthy are back on track after suffering only minor setbacks. Incomes fell across the board from 2007, before the recession began, to 2008. Everyone took a hit, from the poorest quintile to the richest. But that’s where the shared pain ends. From 2008 to 2009 almost everyone’s income continued to fall except the rich. The richest 5 percent of Americans saw their average income rise last year by $1,800.

Change in average household income, by quintile

Not so for those in the middle. Median household income continued to slide from 2008 to 2009, falling by $335. In fact, the median household has lost almost $2,200 in annual income since the recession began. That is the largest two-year decline in at least 35 years and amounts to a drop of more than 4 percent.

Those at the very bottom are also falling further behind. Overall, the percentage of people living in poverty jumped for the third year in a row, reaching 14.3 percent in 2009. That’s higher than at any point in the last 15 years. The increase in poverty rates from 2008 to 2009 was the largest year-over-year percentage increase since 1980. And one out of every five children lived in poverty last year.

If that weren’t enough, the ranks of the extremely poor also swelled significantly. The percentage of people living below 50 percent of the federal poverty level rose to the highest point since the Census began keeping track.

Poverty rates, 1980-2009

It should come as no surprise, then, that income inequality is fast approaching record levels. The richest 5 percent of Americans claimed almost 22 percent of all income in 2009, and the top fifth took home fully half of the nation’s income. The poorest fifth, meanwhile, earned just 3.4 percent of all the income, and the share of national income going to the vast middle dipped as well. Income inequality in 2009 was higher than at any point since at least 1967, according to one measure.

All those facts and figures reinforce what most people already know: The middle class took this recession right on the chin while the rich suffered no more than a glancing blow. And yet somehow in Washington the talk is all about tax cuts for rich people.

The Bush tax cuts—which primarily benefited the wealthy—all expire at the end of this year. President Barack Obama wants to cut taxes for everyone making less than $250,000. That’s 98 percent of the people in the country. Conservatives refuse to go along with this plan unless they can also cut taxes for the richest 2 percent of Americans.

Keeping those high-end tax cuts in place would cost the federal government more than $800 billion over the next 10 years after including the costs of the added debt. More than 80 percent of the benefit will go to people making at least $1 million a year, and their average tax cut would be more than $100,000. That’s almost twice what the median American household makes in a year.

This is how absurd our national conversation has become. We’re actually fighting over whether we should borrow hundreds of billions of dollars and give that money to the only group of people in the country who are already back on track. Instead of focusing on a policy that would exclusively benefit those who make more than $250,000 a year we should be discussing how to get wages and middle-class incomes rising again, the best ways to bring people out of poverty, and what we can do to address the ever-widening disparities between the super-rich and everyone else. Our priorities are indeed skewed when the dominant argument over economic policy pertains to $100,000 tax cuts for millionaires while our middle class is barely treading water.

Michael Linden is the Associate Director for Tax and Budget Policy and Heather Boushey is a Senior Economist at American Progress.

More from CAP on the Bush tax cuts:

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