Aluminum, tin, or diamonds…these are the traditional gift options to mark a ten-year anniversary. The occasion? This past Tuesday, June 7th, marked ten years since the 2001 passage of the first round of large tax cuts under President George W. Bush. Given the lingering recession, diamonds, unfortunately, may not be on the table.
It is important to note that despite the optics of these cuts as being solely directed to wealthier households, the Bush tax cuts did include benefits for middle- and lower-income households, through the lowering of overall tax rates and expansions to the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). Though it is equally important to note that recent analysis by Citizens for Tax Justice reveals a further extension of the original tax changes would result in the bottom sixty percent of taxpayers in the U.S. reaping only 13.4 percent of the tax cut benefits.
By contrast, 47 percent of the benefits would flow to the wealthiest five percent of taxpayers. For reasons partially tied to this disparity, the mere mention of the Bush tax cuts evokes strong sentiment over the direction in which our nation’s resources should flow.
The disparity among the tax cut beneficiaries is not unlike the disparity between household income levels and general inequality in the U.S. that has also risen sharply over the past decade. It is important then to not just consider the tax breaks in terms of outcomes for the wealthiest, but understand what is happening at the lower end of the income spectrum as well.
Last week, the U.S. Department of Health and Human Services sponsored a three-day conference in the nation’s capital on the state of our welfare system. Congress created the cash assistance programs, Temporary Assistance to Needy Families (TANF) in 1996 (with unemployment at 5.4%) with the primary intention of moving low-income parents into the labor market. Given the original intent of the program, the shift in current conversation around TANF (with this year’s unemployment rate averaging 9.6%) was striking. Rather than worrying about how to incentivize participation in a strong labor market, a significant part of the conference was spent discussing how TANF money has been used to actively create jobs over the last two years – through the successful (though sadly short-lived) TANF Emergency Contingency Fund.
The change in our economy, as reflected most starkly by the change in unemployment, also led to a change in child poverty in the U.S. In comparison to the decline in child poverty after the immediate implementation of welfare reform, child poverty has been on the rise since 2000 – currently encompassing one in five children across the country, and with no signs of slowing.
A number of politicians who won seats in 2010 campaigned not necessarily against child poverty, but around the continuing lack of jobs. Yet the subsequent debate in Congress has been consumed not by the jobs crisis, but by proposals for spending cuts – each one more extreme than the last, and with much of the cuts falling disproportionately on vulnerable populations, including children. This focus on spending cuts is also coupled with a determined push by many to keep revenue-raising (i.e. tax changes) off the negotiating table. A ban on tax changes, though, effectively opens a backdoor route to making the aforementioned Bush tax cuts permanent – and much of the disparity they represent permanent as well.
Ultimately, the public debate needs to shift – and shift hard – from the question of who is deserving of another round of tax breaks to the question of how the economy will deliver good (i.e. sustainable, living-wage) jobs for the next generation. If ten years from now, we have been able to answer this question satisfactorily, then diamonds just may be in order.