You're rich! You may be struggling to pay off your credit cards, the
mortgage on your home and the kids' braces. You haven't figured out
where the money is going to come from when it comes time to send your
oldest son to college and you will have to wait at least another year to
replace that old leaky roof, but you're rich. At least that's how the
Clinton administration sees it.
When you hear Bill Clinton and Al Gore telling you that the tax cut
passed by the Republican-led Congress largely is going to benefit the
rich, you need to know that, if you are a taxpayer, more than likely you
are in that category.
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The tax bill that will be on the president's desk in September has
specific provisions that will directly benefit all who are helping to
carry the load of the behemoth federal government. It is true that the
rich will share in a portion of the tax cut. About a third of the
bill's promised tax relief will come from gradually cutting each of the
individual tax rates by one percentage point. However, to say that
this is a tax cut that primarily will benefit the rich is disingenuous.
The only way Clinton, Gore and friends can get away with calling it a
tax cut for the rich, is by employing a dishonest accounting system used
by the Treasury which is a crafty way to push more people into the rich
The government divides us into quintiles, with each quintile
representing 20 percent of families or households. Those in the bottom
two quintiles are the low-income earners. Those in the third quintile
are considered to be in the middle economic class, and those in the
fourth and fifth quintiles are the most affluent. Presently, if "Family
Economic Income" is above $59,019 you are placed in one of the top two
categories. In other words, you are rich.
If your family brings in $59,000 and living in a state like Arkansas,
New Mexico or Mississippi, where the cost of living is low, you are
doing quite well. However, the same family living in Connecticut, New
York or California would be hard-pressed to make ends meet. However,
you don't have to make $59,000 or more to wind up in one of the top
quintiles. The way the government calculates this Family Economic
Income can make you appear 50 percent wealthier than you are and has no
relationship to what's on your pay stubs or your IRS form.
If you own a home, the Treasury estimates what the rent on that home
would be and adds that to your total. It also includes nontaxable
transfers such as Social Security and welfare payments. The money you
put into your IRA and 401(k) is added in, as well any inside buildup on
your pension accounts. The Treasury also includes any employer-provided
fringe benefits, life insurance and capitol gains on any assets you
might own, even if they are not sold. If you own corporate stock, that
company's profits also are added in, even if no dividends are paid.
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When Democrats argue that those on the lower rungs of the economic
ladder will receive little or nothing in tax cuts from the bill, they
are stating a half-truth. The other half of this equation is that those
in the first two quintiles pay little, if any, federal income tax now.
In 1998, according to the U.S. Congress Joint Committee on Taxation, all
families with incomes below $20,000 had a negative tax liability. These
families received some $12 billion in refund checks from the government,
primarily because of the Earned Income Tax Credit. Furthermore, one of
the ways the tax cut bill helps those on the lower rungs of the economic
ladder is by widening the first tax bracket.
Under our progressive tax system, the more you make the higher your
tax rate. Currently the top 5 percent of taxpayers here in the United
States are paying a majority of all income taxes, or 50.78 percent.
However, the top 25 percent of taxpayers shoulder more than 80 percent
of the load, and according to IRS figures from 1996, if you made more
than $45,833 that year you were in the top 25 percent. In other words,
whether you feel like it or not, you're rich!