Taxing Progressively

Budget Cuts in Perspective: A Tale of Two Ikes

Local government elected leaders are claiming we have no alternative to king-size budget cuts. But their numbers don’t add up.

By Sam Pizzigati

You won’t find many suburbs in the United States more affluent than the burbs that ring Washington, D.C. In fact, six of the ten wealthiest counties in the entire United States sit just outside our nation’s capital.

But those counties, these days, aren’t seeming so wealthy. All this month local elected officials from these affluent jurisdictions have been announcing deep and unprecedented budget cuts — and hinting at more.

The most stunning of these announcements came last Monday when the top elected leader in Maryland’s Montgomery County unveiled a budget plan that has the county spending fewer dollars than the year before, the first time that will have happened since the current county charter went into effect back in 1968.

This cutback will cost most county workers ten days of pay — and hundreds of others their jobs. The county’s near 1 million residents, for their part, will be seeing fewer public services. Libraries will be open fewer hours. Roads will go unrepaired. Classrooms will become more crowded.  Bus routes will be eliminated.

No mistake about it, the county’s top elected official, Ike Leggett, confirmed last week, “there is pain in this budget.”

What’s causing this unprecedented pain? County executive Leggett, a former chair of the Maryland Democratic Party, is blaming everything from the “severity of the economic recession” to the heavy cost of “this winter’s historic blizzards” to “out of control” county spending before his election four years ago.

Left conveniently unmentioned: the core fiscal reality of our time. Average Americans are suffering unprecedented budget pain because politicos like Ike Leggett have been doing their best to keep wealthy Americans pain-free.

If today’s rich — in Montgomery County and out across the United States — were paying as much of their incomes in taxes as America’s rich paid back in the middle of the 20th century, we would be witnessing no public sector meltdown.

Let’s look at the numbers you won’t find in any of the artful charts and graphs Montgomery County officials presented last week to justify their cutback course.

The first number: $58,000. That’s how much, calculates the Institute on Taxation and Economic Policy, the average Maryland taxpayer in the state’s richest 1 percent will save this year in federal taxes, thanks to the George W. Bush tax cuts enacted in 2001 and 2003.

signupThese top 1 percent taxpayers — average income, over $1.4 million — will have, all together, about $1.5 billion more in their pockets at the end of this year than they would if they were still paying federal taxes at year 2000 tax rates.  

How many of these top 1 percent taxpayers will hail from Montgomery County? We can make a good estimate.

In 2008, the most recent year with official stats available, 44.6 percent of Marylanders making over $500,000 lived in Montgomery County. If that share stays steady this year, nearly $670 million of that $1.5 billion awesomely affluent Marylanders will save in 2010 from the Bush tax cuts will likely be sitting in the pockets of wealthy Montgomery County residents.

This $670 million equals well over three-quarters of the $779 million shortfall Montgomery County officials are projecting for the Montgomery County budget year that starts this July 1, if the county doesn’t swallow the massive budget cuts county executive Leggett has just proposed.

But tax cuts for America’s wealthy, we need to keep in mind, didn’t start with George W. Bush. Our wealthy have been enjoying massive tax breaks for over a generation. What if we erased all these tax breaks for high-rollers?

To be more specific, what if wealthy taxpayers in today’s Montgomery County were paying taxes at the same rate as wealthy county residents a half century ago, back during the White House years of America’s most famous political “Ike,” Dwight D. Eisenhower?

In 2008, the 6,538 Montgomery County taxpayers who made over $500,000 averaged $1,355,147 in income. Back in 1955, in the middle of those Eisenhower years, high-rollers who made, after adjusting for inflation, this same sum paid — after exploiting every loophole they could find — just over 44 percent of their incomes in federal income tax, according to IRS records.

We don’t have figures yet on how much Montgomery County affluents paid in 2008 federal taxes. But we do know that in 2007, the year before, Americans who made about $1,355,147 paid just over 24 percent of their incomes in federal tax.

In other words, those deep pockets back in 1955 paid almost twice as much of their incomes in federal tax as their high-income counterparts today.

Let’s get back to those 6,538 Montgomery County residents who averaged $1,355,147 in 2008 income. They would have paid over $1.7 billion more in federal taxes that year if they had paid taxes at Dwight D. Eisenhower tax rates, a sum well over double the impending Montgomery County budget shortfall.

In short, thanks to tax breaks for the rich, staggering sums of extra dollars are now sloshing around inside the pockets of Montgomery County’s wealthiest residents. Local government politicos like Ike Leggett, if they so chose, could try to recapture those lost dollars at the local level. Leggett chooses not to.

Indeed, three years ago, county executive Leggett helped lead the opposition to a modest state tax increase on millionaire incomes proposed by Maryland’s governor. The modest increase eventually did pass, but in a watered-down form.

“Leadership,” Ike Leggett pronounced last week, “means making the hard choices now that address our current problems, without resorting to quick fixes.”

For pols like Ike Leggett, axing jobs and cutting home care hours for low-income seniors apparently don’t qualify as “quick fixes.” Tax hikes on the rich? They do.

Sam Pizzigati edits Too Much, the online newsletter on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Too Much appears weekly. Read the current issue or sign up to receive Too Much in your inbox.

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