The 1990s was a decade of growing inequality in the United States,
with an increasing consolidation of wealth in the hands of a small number
of people and a growing gap between the richest and poorest citizens. From
1995-2000, during the era of the great “stock market boom,” if one uses the
terminology of the mainstream media, the media reported that wealth was becoming
democratized and that everyone was making money in the stock market. However,
an assessment is a media myth with little validity, as economic numbers do
not support the claims about stock market wealth or those of greater monetary
equality. While inequality grew slower in the 1990s than in the 1980s, the
gap between the wealthiest Americans and the majority continued to grow.
1 From 1995-2000, the income of the top five percent of Americans
grew by approximately 3.5% while that of the bottom twenty percent grew by
1.7%.2 Such disparities are found across
all income levels, with those in the second twenty percent growing by just
over 2%, those in the third growing by 2%, the fourth by approximately 2.2%,
and those in the eighty-five to ninety-five percent range growing by approximately
2.5%.3 Incomes grew most significantly for those who already had the most money,
which is a trend that continues into the 2000s. From 2000-2001, while all
other brackets experienced declines, the wealth of the top five percent of
people grew by .4%.4 While .4% does not seem significant, in light of the decreases in income experienced by other
groups in the United States, it is a significant difference. During that period,
the bottom quintile’s income fell by 3.9%, the second by 2.3%, the third by
1.8%, the fourth by 1%, and those in the eighty-five to ninety-fifth percentile
by .7%.5
Michigan’s 9,938,444 citizens have experienced growing inequality consistent
with the national trend towards consolidation of wealth by a small minority.6
By the late 1990s, income of the wealthiest twenty percent of families was
9.2 times that of the poorest twenty percent, an increase from the late 1980s
when that number was at 8.9.7 While
some have tried to dismiss the numbers pointing to growing inequality as being
flawed, an examination of the arguments against rising inequality are rather
weak. One such argument states that different measurements lead to different
numbers, and that therefore the current statistics on inequality are flawed.
However, economists for the Economic Policy Institute
have found that no matter what measurement is used, inequality is growing.8 Another popular argument acknowledges
that there is inequality, but says it is “non-economic” and is caused by increased
taxes, however, this argument was also found to be lacking by the Economic
Policy Institute.9
Presumably, it is the aforementioned belief that leads to the
tax code changes such as those recently signed by President Bush in May of
2003. These “economic stimulus packages,” a term which is simply a euphemism
for “tax cuts for a small minority,” are passed under the premise that it
is the “tax burden” which causes both economic slowdowns and inequality, a
belief which ignores questions about the systemic nature of these problems,
failing to ask for example, if such levels of inequality are an inherent part
of an economic policy that benefits the wealthy and corporations to the detriment
of those outside of these groups. President Bush, arguing that the economy
has become stagnant, despite the fact that the economy has grown by small
amounts for seven of the last eight quarters, passed a tax package that primarily
benefits the wealthy.10 Just as the majority of people in
the United States and Michigan saw little benefit from economic expansion
of the 1990s, they will see little to no benefit from the recent tax package.
During the 1990s the mainstream media played a key role in creating
the myth that it was an economic “boom time” for everyone, despite the fact
that the economic data shows that this was clearly not the case. If recent
reporting is any indication, they will be playing a similar role in creating
the mythology that the Bush tax package benefits all Americans. CBS news boldly
proclaimed that “Most families will get a $400 check this summer for each
child to cover the increased tax credit, which went from $600 to $1,000 under
the law Mr. Bush signed Wednesday,” merely one example in what has been a
chorus of media reporting on the benefits of the “tax cut.”11 In
addition to the increase in the Child Tax Credit, which will go to families
with children under 17 making between $26,625 and $110,000, there was a reduction
and eventual elimination of taxes on dividends, elimination of the so-called
“Marriage Penalty,” and a reduction of taxes for those in the upper income
brackets. Perhaps one of the most interesting twists in the discussion of
the tax package is the fact that middle-income people will have the highest
tax burden because they do not quality for the targeted tax rates that go
to the poorest and wealthiest segments of the population.12
While the mainstream media has not undertaken a complete analysis
of the tax cut as a way of increasing inequality, they have looked at the
inherent inequality in the way the newly increased Child Tax Credit (from
$600 to $1,000) is awarded. This credit is one of the hallmarks of the Bush
plan, as it will send $400 checks to make up the difference to qualifying
families. The media has reported that families making over $110,000 will be
left out from the cut, and surprisingly, that those making between $10,500
and $26,625 will not receive this credit. By excluding families in the $10,500
to $26,625 range, 6.5 million families, with 12 million children, will not
receive the credit, despite the fact that they probably need the credit more
than anyone else, as income has been falling most rapidly for those in low
paying jobs.13 Credits for this income group were approved in the Senate version
of the bill, but dropped in the conference committee.14 According to White House Press Secretary Ari Fleischer, “Low-income
families are treated differently because of the fact that they don’t pay income
taxes at the same rate that somebody not on the earned income tax credit does,”
and consequently, as far as the Republicans are concerned, they do not deserve
the credit.15 Republicans such as Senate Majority
Leader Bill Frist, who dismissed criticism of decision not to award the Child
Tax Credit low-income families as being “…the old, worn-out, tired, class
warfare issue,” have been forced to reexamine the credit, and there are bills
proposed which would extend the credit.16 Thus far, these proposals seek to
extend the credit both to minimum-wage families, as well as to more wealthy
Americans, raising the cut-off from $110,000 to $150,000.17 While
some Republicans, such as Tom Delay, argue that “…it’s a little difficult
to give tax relief to people that don’t pay income tax,” they are ignoring
the fact that giving credits to those not paying income taxes has historic
precedence.18 Such credits have
been awarded annually since 1975 with the Earned Income Credit, which provides
$32 billion in refunds to 19 million houses, while in 2001, a previous Bush
tax plan gave rebates to all people that paid taxes as a means to offset Social
Security and Medicare payments.19
Criticism in the mainstream media has been confined primarily
to the Child Tax Credit, but several independent organizations that monitor
tax policy have raised even more significant questions about who benefits
from the tax plan. According to Citizens for Tax Justice,
49% of taxpayers will receive a cut of $100 or less from the recent tax bill,
and for those 65.7 million people; the average reduction will be $19.20 Eight million taxpayers making under $75,000 will receive no cut
at all, a number that includes working people earning less than $30,000.21 United for a Fair Economy,
another non-profit organization, came to similar conclusions. Their examination
of the recent bill found that in 2003, the majority of Americans will receive
a cut of $0 to $100, while those making $1 million or more will receive a
$93,500 tax cut.22 According to their calculations,
over the next four years people in the lower 60% of wealth will get 8.6% of
the tax cuts, while the top 1% will receive 39% of the tax cuts.23 Here in Michigan,
2,184,000 million people, or 48% of all taxpayers, will receive a tax cut
of less than $100.24 Over
the next few years these numbers, with the exception of 2002 when “only” 46%
of the population will receive a tax cut of less than $100, get progressively
worse, with 72% in 2005 and 88% in 2006 receiving a benefit from $0 to $100.25
One of the major reasons that the wealthiest Americans benefit
the most from the recent tax bill is that a cornerstone of the package is
a reduction in, and elimination of, taxes on dividends. The reduction in dividend
taxes disproportionately benefits the wealthiest 1% of the population, as
they have the largest amount of assets and capital.26 Two-thirds of the benefit will go to the top 5% of wealthiest
Americans, with 25% of the benefit going to the top .2% of wealthiest people,
or those making more than $1 million dollars per year.27 The cut on dividends was able to pass, in part because of the
mythology of the 1990s — one in which the majority of Americans owned stocks
and benefited from the “bull market” of the late 1990s. However, such a belief
is clearly a media created myth, as only 48.2% of the population owns stocks
of any kind, a number which includes those owned indirectly in 401(k)’s, retirement
plans, and other such investments.28 Moreover,
an examination of those who benefited from stock market gains in the period
of 1989 to 1998, shows that it was the wealthiest households, with the top
one percent receiving 34.8% of gains, the next nine percent receiving 37.7%,
the next ten percent receiving 14.0%, and the bottom eighty percent receiving
only 13.6% of stock market gains.29
While the recent tax bill will increase inequality in the Michigan
and the rest of the United States, it is important to look at the context
into which the tax cut fits in order to completely understand it. This context
is one of steadily growing inequality over the past thirty years. In Michigan,
this inequality can be seen in the wages people are paid, as these wages have
fallen consistently during the past twenty years. The median, inflation-adjusted
wage for low-wage workers in 1999 (those in the 20th percentile)
were 6.9% lower than they were in 1979, while those for workers in the middle
were 9.8% lower than in 1979.30 When broken down in
terms of dollars, for workers in the twentieth percentile wages the median
wage in 1979 was $8.45 and $7.87 in 1999, mirroring the decline in the United
States from the median of $7.61 to $7.35 in 1999.31 For Median-wage workers, or those
in the fiftieth percentile, the median wage in Michigan in 1979 was $13.87
but had fallen to $12.51 in 1999, which exceed the national decrease from
$11.89 to $11.87.32 Because of this decline in wages, the percentage of jobs paying
poverty level wages has increased in Michigan. A poverty level wage is defined
as one paying less than $8.19 per hour, which is the wage required to lift
a family of four above the poverty line with full-time, full-year employment.33 In 1979 17.9% of jobs paid poverty
level wages, while in 1999 that number had grown to 22.9%, an increase that
exceeded the rate of the larger United States, which saw a growth from 23.7%
to 26.8%.34
Due to falling wages, government policies that favor the wealthy,
and cuts in social programs, among other factors, poverty rates are rising
in Michigan and the United States. From 2000 to 2001, the percentage of people
living in poverty grew from 11.3% in 2000 to 11.7% in 2001, for a total of
33 million people.35 Statistics from the 2000 Census reveal
that in 1999, 192,376 families, or 7.4% of those in Michigan were living below
the poverty line.36 The Economic Policy Institute
provides another marker to see how people in Michigan
are faring with their “Basic Family Budget Calculator,” a formula that calculates
how much a family with 1 to 3 children needs to earn in order to pay for basic
expenses such as housing, food, and transportation, and have additional money
leftover. 380,000 families live below the level they define as the minimum,
which is 20.2% of all families in Michigan, numbers that provide more evidence
of inequality.37
If only a small segment of the population is benefiting from
recent government policy, who else benefits? Corporations, many of whom have
CEOs who are among those benefiting from recent tax legislation, continue
to make massive profits despite the current economic situation and are consistently
given massive tax breaks. Their profits are such that in 2001 the average
factory worker was paid $26,764 while the average CEO was paid $11 million,
or 411 times what their average worker received.38 While
this fell from 2000 levels, when the average CEO made 531 times that of the
average factory worker, it remains an important way of demonstrating inequality.39 Not only do these
corporations continue to make enormous profits, they continue to receive major
tax breaks from the government. For example, Microsoft received $12 billion
in tax breaks from 1997 to 2002, paid no tax in 1999 despite profits of $12.3
billion, and only paid a tax of 1.8% on their profits of $21.4 billion from
2000-2002.40 Microsoft is not merely
an exception; rather it is indicative of the huge tax breaks given to corporations.
General Electric made $50.8 billion in profits from 1997-2002, yet they only
paid 11.5% in taxes, while Ford, with profits of $18.6 billion from 2000-2002,
paid only 5.7% in taxes.41 Even WorldCom, paid no taxes in two of the years from 1999 to
2002, despite having profits of $15.2 billion.42 While
these corporations receive massive tax cuts and make small segments of the
population millions of dollars, the majority of the population must make up
for the taxes not paid by corporations.
The level of inequality in the United States and Michigan has
risen in recent years, and the current tax plan will further the current level
of inequality. However, much of the current analysis of the recent tax plan
has failed to examine the plan as an agent of increasing inequality. While
there has been criticism of the Child Tax Credit and the way in which it was
awarded only to certain families, much of this criticism has failed to look
at the systemic nature of inequality in the United States. Given the level
of inequality, a “tax cut,” even if those who need it the most received it,
is unlikely to be able to overcome the current gaps in wealth. Based on the
statistics that exist for Michigan and the United States, it seems increasingly
likely that such disparities will need to be addressed by asking fundamental
question about the way in which government functions and who benefits from
its policies, and ultimately, major reforms need to be instituted.
1. Lawrence Mishel, Jared Bernstein, and
John Schmit, The State of Working America 2000-2001, (Economic Policy
Institute, 2001), 34.
2. “Income Picture,” Economic Policy
Institute, online at http://www.epinet.org/content.cfm/webfeatures_econindicators_income,
(accessed Sept. 24, 2002).
3. “Income Picture”
4. “Income Picture”
5. “Income Picture”
6. “Census 2000 Data for Michigan,” http://www.census.gov/census2000/states/mi.html,
(accessed June 02, 2003).
7. “Michigan at a Glance,” Economic
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(accessed June 04, 2003).
8. Lawrence Mishel et al., State of
Working America 2000-2001, 34.
9. Lawrence Mishel et al., State of
Working America 2000-2001, 34.
10. Robert Freeman, “Bush’s Tax
Cuts: A Form of National Insanity,” CounterPunch, May 30, 2003, online
at http://www.counterpunch.org/freeman05302003.html
11. “No Truce in Tax Cut War,” http://cbsnews.cbs.com/stories/2003/05/30/politics/main556254.shtml,
(May 31, 2003).
12. Dana Milbank and Jonathan Weisman,
“Middle Class Tax Share Set to Rise: Studies Say Burden of Rich to Decline,”
Washington Post, June 04, 2003, online at http://www.commondreams.org/headlines03/0604-07.htm
13. Derrick Z. Jackson, “A Tax Cut for
the Selfish,” Boston Globe, June 04, 2003, online at http://www.commondreams.org/views03/0604-09.htm
14. “No Truce in Tax Cut War,” http://cbsnews.cbs.com/stories/2003/05/30/politics/main556254.shtml,
(May 31, 2003).
15. “No Truce in Tax Cut War,” http://cbsnews.cbs.com/stories/2003/05/30/politics/main556254.shtml,
(May 31, 2003).
16. “Bush signs $350 billion tax-cut,” http://www.cnn.com/2003/ALLPOLITICS/05/28/bush.taxes.ap/index.html,
(May 28, 2003).
17. David Firestone, “DeLay Rebuffs Move
to Restore Lost Tax Credit,” New York Times, June 04, 2003, online
at http://www.commondreams.org/headlines03/0604-06.htm
18. David Firestone, “DeLay Rebuffs Move
to Restore Lost Tax Credit,” New York Times, June 04, 2003, online
at http://www.commondreams.org/headlines03/0604-06.htm
19. David Firestone, “DeLay Rebuffs Move
to Restore Lost Tax Credit,” New York Times, June 04, 2003, online
at http://www.commondreams.org/headlines03/0604-06.htm
20. “Most Taxpayer Get Little Help from
Latest Bush Tax Plan,” Citizens for Tax Justice, May 30, 2003, online
at http://www.ctj.org/pdf/2003statecut.pdf
21. Derrick Z. Jackson, “A Tax Cut for
the Selfish,” Boston Globe, June 04, 2003, online at http://www.commondreams.org/views03/0604-09.htm
22. Chris Hartman, David Martin, and Ben
Robinson, “Bush Tax Cut Unfair, Won’t Help Economy,” United for a Fair
Economy, May 29, 2003, online at http://www.ufenet.org/research/BushStimulus.html
23. Chris Hartman, David Martin, and Ben
Robinson, “Bush Tax Cut Unfair, Won’t Help Economy,” United for a Fair
Economy, May 29, 2003, online at http://www.ufenet.org/research/BushStimulus.html
24. “Most Taxpayer Get Little Help from
Latest Bush Tax Plan,” Citizens for Tax Justice, May 30, 2003, online
at http://www.ctj.org/pdf/2003statecut.pdf
25. “Most Taxpayer Get Little Help from
Latest Bush Tax Plan,” Citizens for Tax Justice, May 30, 2003, online
at http://www.ctj.org/pdf/2003statecut.pdf
26. Dana Milbank and Jonathan Weisman,
“Middle Class Tax Share Set to Rise: Studies Say Burden of Rich to Decline,”
Washington Post, June 04, 2003, online at http://www.commondreams.org/headlines03/0604-07.htm
27. Chris Hartman, David Martin, and Ben
Robinson, “Bush Tax Cut Unfair, Won’t Help Economy,” United for a Fair
Economy, May 29, 2003, online at http://www.ufenet.org/research/BushStimulus.html
28. Lawrence Mishel, Jared Bernstein, and
John Schmit, The State of Working America 2000-2001, (Economic Policy
Institute, 2001), 269.
29. “Economic Apartheid Data Center,” United
for a Fair Economy, accessed June 03, 2003, online at http://www.ufenet.org/research/Economic_Apartheid_Data.html
30. “Michigan at a Glance,” Economic
Policy Institute, online at http://www.epinet.org/content.cfm/datazone_states_usmap_mi,
(accessed June 04, 2003).
31. “Michigan and the U.S.,” Economic
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34. “Michigan and the U.S.,” Economic
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35. “Income Picture,” Economic Policy
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(accessed Sept. 24, 2002).
36. “Profile of Selected Economic Characteristics
— Michigan, 2000 Census Statistics,” http://factfinder.census.gov/servlet/QTTable?ds_name=DEC_2000_SF3_U&geo_id=04000US26&qr_name=DEC_2000_SF3_U_DP3,
(accessed June 02, 2003).
37. “Basic Family Budget Calculator – Grand
Rapids-Muskegon-Holland, MI,”http://www.epinet.org/cgioutput.cfm?template=epiuicalc.P4RGvg&title=Basic%20Family%20Budget%20Calculator,
(June 04, 2003).
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39. “Economic Apartheid Data Center,” United
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40. “Surge in Corporate Tax Welfare Drives
Corporate Tax Payments Down to Near Record Low,” Citizens for Tax Justice,
April 17, 2002, online at http://www.ctj.org/html/corp0402.htm
41. “Surge in Corporate Tax Welfare Drives
Corporate Tax Payments Down to Near Record Low,” Citizens for Tax Justice,
April 17, 2002, online at http://www.ctj.org/html/corp0402.htm
42. “Surge in Corporate Tax Welfare Drives
Corporate Tax Payments Down to Near Record Low,” Citizens for Tax Justice,
April 17, 2002, online at http://www.ctj.org/html/corp0402.htm
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