June 25, 2004
Thoughts on taxes

I keep reading liberal pundits and columnists who toss off the throwaway phrase of "the massive Bush tax cuts", as if it is common, undisputed knowledge. I cannot possibly disagree more.

In 1992, the top tax rate was 31 percent. Clinton's first budget included a new top tax rate of 36 percent, with a "temporary" "millionaire's" surtax of 10 percent (of the taxes paid), for a top tax rate of 39.6 percent. I use the scare quotes because the surtax was neither temporary nor limited to millionaires. It ended only because Bush made tax cuts the single most important issue in his first year in office, and it affected everyone who made more than about $250,000/year.

So far, Bush's tax cuts have reduced the top tax rate from 39.6 percent to 39.1 percent to 38.6 percent, and the next reduction is to 35 percent. By my calculation, that means the tax rate is still more than 4 percentage points higher than they were before the Clinton tax increases of 1993 (almost 12 percent higher). Further, while Clinton's tax increases (or any tax increase, for that matter) is indefinite, the Bush tax cuts are written to expire in 2011, at which point taxes will increase for every single person who pays taxes.

Additionally, the tax cut is mischaracterized as "for the rich". In absolute dollar terms, someone who pays $100,000 in taxes (the top 1 percent) is going to save a lot more with a tax break of 4.6 percentage points (an 11.6 percent reduction) than will someone who pays $1,200 in taxes will with a tax break of 5 percentage points (from 15 percent to 10 percent, a 33 percent reduction). However, as I pointed out, in percentage terms, the tax cuts are strongly biased in favor of the smaller brackets, especially the smallest. In addition, the Bush cuts dropped an additional four million taxpayers from the rolls, which resulted in a 100 percent reduction for them (15 percentage points). Over 30 million people already paid no taxes, so of course the tax cuts did not benefit them (you have to pay taxes to benefit from a tax cut). This chart, from the anti-tax Tax Foundation, has some interesting data on how much more than their fair share the top earners pay every year in taxes.

posted on June 25, 2004 08:28 PM


Now 55 percent of voters pay no income tax at all. This means Democrats can win elections with tax and spend policies. We would be much better off if the working poor paid the same rate as everyone else, even though the total dollars raised would be small.

posted by John Doe on June 30, 2004 05:05 PM

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