$10 tax cut

April 14, 2006

Rushing to file your 2005 tax forms before Monday's deadline, you may ask how anyone could rail against extending a tax cut.

Here's the best answer: You very likely got next to nothing from this cut. But the guy who already has more money coming in than you can possibly imagine made out very, very well.

We're talking about the part of the 2003 tax cuts that temporarily lowered the top rate on corporate dividends from 35 percent to 15 percent and the top capital-gains tax rate from 20 percent to 15 percent.

FOR THE RECORD - An editorial in Friday's edition referred to today as the filing deadline for income tax returns. While that's true in most of the country, Maryland filers have until tomorrow for both state and federal returns. The Sun regrets the error.

Congress last week stalled on extending these cuts, set to expire at the end of 2008, for two more years. The extension won't be taken up again until lawmakers return from their two-week break. Let's hope that when they return, good sense - not voodoo economics - reigns.

A new study by Citizens for Tax Justice, first reported in The New York Times, shows that the benefits of the cuts in the dividend and capital-gains tax rates have been even more skewed than the Bush administration's 2001-2003 cuts in the overall income tax rates. Actually, skewed may be far too mild an adjective.

The study showed:

Almost 71 percent of all tax filers - those with adjusted gross incomes of less than $50,000 - gained an average of just $10 from the dividend and capital-gains tax cuts.

Almost half the benefit of these investment tax cuts went to those making $1 million or more.

And those making $10 million or more each saved an average of almost $500,000 in taxes from these cuts - on top of their more than $500,000 in average savings from the other 2001-2003 tax cuts. Together, that's an average of $1 million in annual tax savings for the super-wealthy.

Like all of the Bush tax cuts, these were sold on the spurious theories that they would generate economic growth and would benefit what the president likes to call an "ownership society," one in which half of all households own stock or mutual funds.

But in reality, while a growing percentage of Americans are stockholders, their holdings are largely in non-taxed retirement accounts or amount to so little that these tax cuts don't yield much savings. Studies show that the wealthiest 10 percent of households own 70 percent of all taxable stock.

No surprise then: A highly concentrated group of big stockholders is reaping most of the savings from the dividend and capital-gains tax cuts, while the majority of households (and their children) are getting stuck with the bill in the form of added government debt - estimated at $21 billion a year over the next five years.

Think about that $105 billion in added national debt when you file your taxes. Will you get much tax savings for it?

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