August 12, 2004
Tax Burden Shifts to the Middle
From the Washington Post:
Since 2001, President Bush's tax cuts have shifted federal tax payments from the richest Americans to a wide swath of middle-class families, the Congressional Budget Office has found, a conclusion likely to roil the presidential election campaign...The analysis, requested in May by congressional Democrats, echoes similar studies by think tanks and Democratic activist groups. But the conclusions have heightened significance because of their source, a nonpartisan government agency headed by a former senior economist from the Bush White House, Douglas Holtz-Eakin. Indeed, the study will likely stoke an already burning debate about the fairness and efficacy of $1.7 trillion in tax cuts that the president pushed through Congress.
The rich get richer and middle-class idiots continue to vote Republican...
After thinking about this a bit, this isn't at all surprising. In fact, I think the Bush camp would even admit that this was intended: to shift part of what they perceive was an unfair share of the tax burden away from the rich. Where are they gonna shift it? Not to the poor, so only the middle class is left. No surprise there.
And, if we lower overall income tax receipts, but lower it more for one group than another, then the portion of the (now reduced) overall receipts paid by the former group will fall, while that paid by the latter group will rise, all other things staying equal. That's pretty simple; really shouldn't surprise anyone.
But, also consider what has happened to the economy during the period. If overall wages fell, then the middle group may also have grown somewhat, and that enhances the effect.
Frankly, this doesn't bother me so much as the soaring deficit and the "legal" tax cheating by big corporations, which accounts for HUGE lost taxes that could be used to offset the deficit if it weren't for the flagrant pandering of the current admin. Ugh.
Posted by: heimie at August 13, 2004 09:38 AMI think the Bush camp would even admit that this was intended: to shift part of what they perceive was an unfair share of the tax burden away from the rich. Where are they gonna shift it?
They are also funding their tax cuts to the rich by running huge deficits. This is actually shifting a large part of the tax burden onto future taxpayers, and I don't think they would admit that. I also don't think that Karl Rove would like to admit that they have effectively taken most of the progressivity out of the tax code.
This from Andrew Tobias:
Really rich people get most of their income from capital gains, now taxed at 15% (down from 20%), dividends, now also taxed at 15% (down from 39.6%), and tax-free interest, now taxed at 0%, as it always was. (If you impute a tax to it based on the slightly lower interest that tax-free bonds pay relative to, say, Treasuries, it still may come out to only 15% or 20%.)Posted by: Mike at August 13, 2004 11:05 AM
So take Dick Cheney. On $560,000 of his 2002 income he paid zero tax, because it came from tax-free bonds. How steeply progressive, really, are rates of 15% and 20%?
In the year 2000, four hundred Americans reported income to the IRS of $86 million or more. They were, one might expect, at the peak of the steeply progressive income tax pyramid. Yet on average, they paid not 90% or 70% or 50% or 39% or 35% of their income in federal tax . . . they paid 22.3%.
To their rescue rode George W. Bush, cutting the capital gains tax by 25% and the tax on dividends by 62% (and proposing to cut the estate tax by 100%). Had today’s Bush tax cuts been in effect in 2000, the aforementioned 400 zillionaires would have seen their federal income tax burden fall from 22.3%, on average, to 17.5%.
To me, a 22.3% effective tax rate on income of $100 million or $200 million – let alone a 17.5% rate – is not steeply progressive. Consider that a self-employed lawn maintenance man earning $38,000 a year pays, for starters, 15.3% of his income in FICA. So even if he paid zero income tax – and he might well not – how steep is the climb from 15.3% to 17.5%?