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Tyrone Schiff
Widening The Gap

There is a common maxim that states in life there are two certainties, death and

taxes. Taxes have been around for a great deal of time and have contributed to almost all

civilization’s histories. In particular, the American Revolution was sparked by the

colonies grievance with the English parliament unfairly taxing them. This occurred over

two hundred years ago, but the significance and role that taxes play in the common

American’s life is immense and may even be more widespread than one may think. The

standard document that all Americans fill out before April 15th is called the form 1040.

The unique thing about this document is that no matter how much money you make or do

not make, the form 1040 is all you need and all that is required by the government. There

are a tremendous number of people from a drastic range of economic and sociological

backgrounds that therefore fill out this exact same form. The form 1040 needs to be

universal so that the process of taxation is fair. This paper will attempt to reveal that the

form 1040 does not work fairly and furthers a rich-poor gap that is already becoming

prevalent in our society. Specifically, the form 1040 uses particular wording and

promotes deductions that only the rich can benefit from. It allows for deductions on items

that may not be easily available to individuals who are not necessarily rich. This has

created a silent but far more substantial benefit to the rich. Thus, one can assert that the

tax form 1040 that Americans of all sociological and economic backgrounds use is

constructed in such a way that it unequally represents those who use it and furthers the

gap between the rich and poor.

In order to better understand the meaning of this silent benefit, it is imperative to

discuss what scholars call the “hidden welfare state.” Christopher Howard explains in his
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book, The Hidden Welfare State: Tax Expenditures and Social Policy in the United States,

“the hidden welfare state occupies a sort of no-man’s land between the social policy and

tax policy […]” (7). Although taxes ought to be separated from social realms in order for

it to be a fair system, Howard suggests that the hidden welfare state that exists in our

current tax system incorporates aspects that may in fact shape our society. Tax

expenditures are the fuel that propels this hidden welfare state forward. Tax expenditures

are merely “tax breaks” or a means of giving money back to individuals directly rather

than through government spending. This can include tax deductions or completely

excluding some income from taxation (Krippner). These concepts are fundamental in

realizing how the hidden welfare state operates. In order to best illustrate how this hidden

welfare state is developed and in turn furthers the gap between the rich and poor, an

analysis of the form 1040 will be necessary.

The tax form uses exclusionary methods to mold our society. Under one of the

first sections of the form 1040, income, there are some instances in which information is

asked for that are typically only employed by the rich. Line 8a of the tax form asks for

taxable interest. Taxable interest is the result of interest on investments an individual may

have. These investments may be in certificate deposits, money market accounts, bonds or

some other financial instrument. Being able to put money away and have it accumulate

interest is a privilege given to those who have acquired the means to do so, namely the

rich. This is excludes the poor from this portion of filling out the tax form. This

exclusionary principle is a constant reminder to the poor that this is something else they

do not have. It works on keeping the poor down. Just a couple lines below that, 9a and b,

are ordinary and classified dividends. Dividends are payments that companies make to
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their shareholders. Being able to buy and invest in the stock market is another example of

an activity that typically the rich only partake in. It is true that half of all American

households own stock, but the amount owned is severely different (Krippner). Still, the

poor who have to fill out this form will notice that they are not involved in this portion of

taxation either. A final example of the exclusion inherent to the form 1040 occurs on line

15a, where it asks for IRA distributions. The poor will not be able to partake in this either.

An IRA is yet another investment that is set up for one’s retirement. The poor are very

rarely able to put money aside, let alone money for so long down the road as is

retirement. Furthermore, Howard explains that these, “employer pensions stand out as

one of the largest programs in the hidden welfare state […]” (27). Pensions or retirement

funds make a significant contribution to widening the gap between rich and poor and is

yet another example of how the poor are left out of the tax process. The tax form is set up

to exclude the poor from it, but at the same time also encourages activities that the rich

partake in through tax expenditures.

The tax form ostensibly supports the actions that are mainly only open to the rich

by giving deductions and credits. In the section following income on the form 1040,

adjusted gross income, there are instances in which deductions are given to activities that

the government may deem valuable. Howard further elaborates on this analysis in

advocating that “tax expenditures reward behaviors that less affluent taxpayers cannot

afford to engage in […]” (31). If one looks more closely at lines 26 and 27, it is clear that

they outline deductions that are available to those who are involved in education.

Education is without a doubt a public good and serves a positive purpose. The issue with

providing a deduction for education and the loans involved in education is that education,
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especially higher forms of education, can be limited to the rich. Poorer demographics do

not usually have the luxury to pursue education beyond high school, because they may

need to get a job to support their families instead. This is clearly an example of the

hidden welfare state, as it benefits those who are already privileged. Rather than

redistributing the money to help the poor, it regurgitates the funds back to those who

already have it. This essentially makes the rich richer and the poor even poorer.

The workings of the hidden welfare state that inevitably lead to a growing gap

between rich and poor is not only limited to the form 1040. When filling out the form

1040 one may also have to submit Schedule A, itemized deductions, and Schedule B,

interest and ordinary dividends, as well. In particular, the itemized deductions on

schedule A are extremely geared towards the rich. The types of things that are included

on schedule A of the form 1040 involve the aforementioned aspects of widening the gap

between rich and poor, namely the tax form’s ability to exclude the poor and provide

breaks for the rich.

One of the most striking portrayals of the tax form showing preferential treatment

to the rich can be found under the section entitled gifts to charity. In order to give charity,

one has to have the means in order to do so. This clearly excludes the poor from this

portion of the tax form, because the poor are generally unable to provide charitable

donations in excess of $250, as the form 1040 states. The tax form goes further in the

following line where it asks for a fair market value of items that may have been donated

such as clothing or furniture (Department of the Treasury). Once again the poor do not

have the chance to take advantage of this portion of the tax form, because they are

generally the ones who would benefit from a donation. They would not be able to gain
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any sort of deduction from their own taxes, while the rich clearly can, because they have

greater opportunity to donate. As a result of being charitable, the rich receive a deduction

on their taxes. This means that the rich are capable of retaining more of their income,

while the poor are still taxed the same amount.

Another instance of exclusion that the tax form 1040 employs that shows the

economic and sociological divide amongst rich and poor is found in the job expense and

most other miscellaneous deductions portion of schedule A. Line 21 of schedule A asks

for one’s tax preparation fees. This is a blatant example of a deduction that is only open

to the rich. Tax preparation fees imply the usage of a company to do one’s taxes such as

Jackson Hewitt or H&R Block. These are services that can only be realistically afforded

by the rich, and once again there is a deduction that comes with it. Being able to have

your taxes done professionally is a luxury that not all people have, yet the tax system is

set up in such a way that if you are able to have these luxuries then one may receive a tax

break for having this privilege. Ultimately, Howard explains these ideas in the following

way, “To the extent that tax expenditures are targeted, it is the rich who benefit and not

the poor” (34). This accurately summarizes the intent of the form 1040. It provides a

number of opportunities for the rich to retain their funds through deductions while

excluding the poor and not giving them the same chances as the rich.

There is a great deal to learn from the standard tax form that all American’s fill

out every year. Embedded within it are many sociological aspects that contribute to the

formation of our society. In particular, this paper has shown how there are many subtle

cues throughout the tax form that work on creating a wider gap between the rich and

poor. Specifically, it does this through excluding the poor from many parts of the tax
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form and providing deductions to only the rich. This broaches an interesting idea about

how the government feels about individuals spending their own income. Tax

expenditures, which contribute to the hidden welfare state, are merely a means of giving

money back to individuals directly, rather than the government doing the spending. The

rich are typically the benefactors of tax expenditures. From this, one can deduce that the

government feels far more comfortable with the rich spending money than the poor. The

government figures that the rich already know how to spend wisely, and therefore give

them as much discretion to spend their own income as possible. On the other hand, the

government taxes the poor and spends the money that the poor earn for them. They do

this by channeling money into welfare systems like food stamps or pumping the money

into public schooling. The government is taking a great deal of economic autonomy away

from the poor when they spend the money that they earn. This reveals that the

government does not have much confidence in the spending abilities of the poor. This

philosophy that the government has utilized has led the United States down a road of

inequality. It unequally distributes income and furthers an already devastating gap

between rich and poor. Clearly, the tax form is far more than just a couple sheets of paper,

it is a tool that alters society and affects the lives of all Americans.
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Bibliography

Christopher Howard, The Hidden Welfare State: Tax Expenditures and Social Policy in

the United States (Princeton, N.J.: Princeton University Press, 1997), pp.3-

39.

Krippner, Greta. Lecture. Economic Sociology 315. Angell Hall Auditorium D, Ann

Arbor. 26 March 2007.

United States. Department of the Treasury. Internal Revenue Service. 2004 Instructions

for Schedules A & B (Form 1040). 2004.