Are We a Plutocracy?

After the new year, the lawmakers are considering extending President Bush's tax cuts on capital gains and dividends through 2010 (the tax rates on gains and dividends are set to increase after 2008). I cannot believe we are even considering this when the plans also include cutting the budget for many programs the poor depend on. We are at war, we have experienced the greatest natural disaster this country has ever seen, and our deficit is at an all time high, yet our government wants to give the wealthy more money and take it away from those who really need it.

I know they say it will help stimulate the economy but historically, there in no evidence showing a relation between capital gains and economic growth. Business are left with more money that they can invest back into their company, but at the same time it also creates incentive for unproductive tax shelters that hurt the economy in more ways than one.

Right now, the top tax rate on capital gains and dividends is 15% and the top tax on income is a much higher 35%. When tax rates on investment gains are much lower than that of business income, tax lawyers find ways to make that ordinary income look like capital gains therefore cutting the taxes on that income in half. That income is sheltered and not only is that money not helping our economy become more productive, that money is going to work to line the pockets of the richest people in this nation who many times will end up paying nothing in taxes.

The Wealthy can organize their finances in ways that the government does not recognize.
For ex: offshore accounts, partnership devices, limited liability companies, so only a small portion of their income gets reported to the government as opposed to their real income whereas if you are strictly a wage earner, which most of us are, all wages are reported therefore making it almost impossible to hide any of your income.

Our tax system is already set up to benefit the rich but it seems we are heading into dangerous territory, considering at one time the tax rate on capital gains was at an all time high of 49.1 percent in 1978. I do not advocate escalating the rate that drastically, but reducing it to more than half of what the tax rate is on income is definitively not the answer.