Just under five percent of the public makes $100,000 a year or more, according to the I.R.S. By contrast, a whopping eighty-one percent of donors to congressional campaigns have reached that comfortable plateau. That second statistic comes to us via the Joyce Foundation and a group of academics who polled a large pool of people who contributed $200 or more to a candidate for Congress in 1996 (http://www.georgetown.edu/wilcox/donorreport.htm).
That one fact explains a lot about the priorities of the I.R.S. reform bill just passed by both houses of Congress and awaiting the President's willing signature. The "Internal Revenue Service Restructuring and Reform Act of 1998" has been touted as providing relief for average taxpayers who have suffered from bureaucratic abuse in their dealings with the agency.
But average taxpayers are not the bill's primary beneficiaries. Instead, members of Congress have just voted to bestow two new tax breaks on a very select group: the wealthiest five percent of all Americans. It cannot be a coincidence that these people dominate the ranks of Congress' campaign contributors.
One little-noticed provision of the bill cuts the length of time an investor must hold a stock, bond or other investment in order to qualify for the lowest capital-gains tax rate. While more Americans have gotten into the market in recent years, this provision will mean little to the six out of ten who still do not own any stock. But it will mean a lot to the favored five percent. The Federal Reserve reports that eighty-four percent of the $100K+ crowd owns stock, with a median value of $91,000. More than three-quarters of the benefits of the capital-gains tax cut will end up in their pockets.
And then there is another provision which is aimed solely at elderly taxpayers with annual incomes above $100,000. It will allow them to convert their conventional IRAs to Roth IRAs, in the long run sheltering billions of dollars from income and estate taxes. (Nearly half of the big donors to congressional campaigns are over the age of sixty.)
Over the next twenty years, these two new tax subsidies will cost the Treasury $30 billion--with most of the benefits flowing to the favored five percent. Last spring, as the I.R.S. reform bill was being deliberated, lobbyists for business and the wealthy swarmed all over Capitol Hill. Meanwhile, as one Senate aide complained to the Wall Street Journal, "the poor average taxpayer [couldn't] afford to send anybody up here to talk to me for 20 minutes."
