Over time, tax-cutting can also harm the rich

By Robert H. Frank The New York Times

THURSDAY, NOVEMBER 24, 2005


<snip>A careful reading of the evidence suggests that even the wealthy have been made worse off, on balance, by recent tax cuts.

On the benefit side, tax cuts have led the wealthy to buy larger houses, in the seemingly plausible expectation that doing so would make them happier. But as economists increasingly recognize, well-being depends less on how much people consume in absolute terms than on the social context in which consumption occurs. Compelling evidence suggests that for the wealthy in particular, when everyone's house grows larger, the primary effect is merely to redefine what qualifies as an acceptable dwelling.

So, although the recent tax cuts have enabled the wealthy to buy more and bigger things, these purchases appear to have had little impact. As the economist Richard Layard has written, "In a poor country, a man proves to his wife that he loves her by giving her a rose, but in a rich country, he must give a dozen roses."

On the cost side of the ledger, the U.S. budget deficits created by the recent tax cuts have had serious consequences, even for the wealthy. These deficits will exceed $300 billion for each of the next six years, according to projections by the nonpartisan Congressional Budget Office.

The most widely reported consequences of the deficits have been cuts in government programs that serve the poorest families. And since the wealthy are well represented in the U.S. political system, their favored programs may seem safe from the budget ax. Wealthy families have further insulated themselves by living in gated communities and sending their children to private schools. Yet such steps go only so far.

For example, budget deficits have led to cuts in federal financing for basic scientific research, even as America's share of global patents granted continues to decline. Such cuts threaten the very basis of long-term economic prosperity. Large deficits also threaten public health. Thus, despite the increasing threat from microorganisms like E. coli O157, the government inspects beef-processing plants at only a quarter the rate it did in the early 1980s. Poor people have died from eating contaminated beef, but so have rich people.

Deficits have also compromised U.S. security. In 2004, for example, the Bush administration reduced financing for the Energy Department's program to secure loosely guarded nuclear stockpiles in the former Soviet Union by 8 percent. And despite the rational fear that terrorists may try to detonate a nuclear bomb in an American city, most cargo containers continue to enter U.S. ports without inspection.

Large budget deficits and low household savings rates have also forced the U.S. government to borrow more than $650 billion each year, primarily from China, Japan and South Korea. These loans must be repaid in full, with interest. The resulting financial burden, plus the risks associated with increased international monetary instability, falls disproportionately on the rich.

At the president's behest, Congress has enacted tax cuts that will result in some $2 trillion in revenue losses by 2010. According to a recent estimate, 52.5 percent of these cuts will have gone to the top 5 percent of earners by the time the enabling legislation is fully phased in. Republicans in Congress are now calling for an additional $69 billion in tax cuts, mostly for high-income families.

<snip>

Moralists often urge the wealthy to imagine how easily their lives could have turned out differently, to adopt a more forgiving posture toward those less prosperous. But top earners might also wish to consider evidence that their own families would have been better off, in purely practical terms, had it not been for the tax cuts of recent years.

http://www.iht.com/articles/2005/11/24/business/tax.php

Affluenzia is more damaging the any other pandemic.

The suffering and struggling by poor and middle Americans is in direct proportion to the gains by the wealthy in our country. The fact that the wealthy may suffer in some small way as a result does not negate the fundamental wrongs being committed by these "rob from the poor and give to the rich" policies.

How can this Administration continue to ask for deep cuts in necessary programs that help the majority in exchange for gimmies to the small minority who are not in need?

I ask these questions rhetorically as I already know the answers. This will come back to bite them in the ass someday...hopefully sooner than later.