By Richard Larsen
Some Americans casually throw around words and phrases that have become clichÃ©d, even though they are not factual. One that was immensely popular four years ago was â€œtax cuts for the wealthy.â€ Since that phrase is coming back into vogue with the current crop of presidential candidates, it might be a good time to review the data to ascertain how apropos the phrase is.
Youâ€™ll recall, the phrase gained prominence with President Bush who in 2001 and 2003, proposed, and Congress ratified, two series of tax cuts. The 2001 version reduced the income tax rates for all tax-payers, while the 2003 version cut the tax rates paid on dividend income and capital gains.
When the net benefits of both series of tax cuts are run against the actual tax collection data from the IRS, the results in absolute as well as relative terms are staggering. Dividing taxpayers into five brackets, those who benefited most were the lowest income, under $25,000 (a tax cut of 17.6%) per year, and those making about $60,000 per year (12.6%) according to IRS data. When the benefits of the second round of tax cuts are factored in, those in the $60,000 per year income level realized a total Federal tax savings of 24 percent. Those who make over $350,000 received a tax cut of 12.5%, while those who make over $1 million got about a 6% reduction. According to the Joint Committee on Taxation, the average Idaho household saw their Federal taxes drop by $1,811 per year.
The Wall Street Journal last week pointed out that the Bush tax cuts, in effect, triggered what may be the biggest increase in tax payments by the rich in American History. The top 1% of taxpayers, who earn $388,806 and higher, paid 40% of all income taxes in 2006, the highest percentage in at least 40 years. Taxpayers in the top 10% in income, those earning over $108,904, paid 71% of the total income taxes collected in 2006, again, the highest in at least 40 years.
When we look at the lowest income taxpayers, the figures are amazing. Those below median income levels paid a record low of 2.9% of all income taxes, while the top 50% paid 97.1% of the income taxes collected for 2006.
What this illustrates is the fact that our Bush tax brackets, due to begin expiring in two years, is very progressive. The cries for the â€œrichâ€ to pay their fair share are hollow whines bred of class envy and socialistic efforts to separate the financially successful from their earnings in the name of redistribution of wealth. As the figures from the IRS and the Wall Street Journal prove, the wealthy are paying more of their fair share than theyâ€™re given credit for.
Even with the tax cuts, the Treasury department receipts have run higher every year since they were implemented, and each year sets a new tax receipt record. As the Wall Street Journal points out, â€œThis is precisely what supply-siders predicted would happen with lower tax rates on capital gains, dividends and income. The economy and earnings would grow faster, which they did; investors would declare more capital gains and companies would pay out more dividends, which they did; the rich would invest less in tax shelters at lower tax rates, so their tax payments would rise, which did happen. The idea that this has been a giveaway to the rich is a figment of the left’s imagination. Taxes paid by millionaire households more than doubled to $274 billion in 2006 from $136 billion in 2003. No President has ever plied more money from the rich than George W. Bush did with his tax cuts. These tax payments from the rich explain the very rapid reduction in the budget deficit to 1.9% of GDP in 2006 from 3.5% in 2003.â€
If you want a surefire shot in the foot of the economy, allow the Bush tax cuts to expire. That will take more capital out of the economy, reduce velocity in a slowing economic environment, and assure that we not only drop into a recession (we still donâ€™t have a recession since itâ€™s defined as two quarters of negative GDP growth) but that ensures that the recession is deep and prolonged.
John McCain may claim to not have the economic acumen he should, but he correctly calls for making the 2001 and 2003 tax cuts permanent. Otherwise, tax rates will rise substantially in each tax bracket, some by 450 basis points; low-income taxpayers will see the 10-percent tax bracket disappear, and they will have to pay taxes at the 15-percent rate; married taxpayers will see the marriage penalty return; taxpayers with children will lose 50 percent of their child tax credits; taxes on dividends will increase beginning on January 1, 2009; taxes on capital gains will increase, also beginning on January 1, 2009; and Federal death taxes will come back to life in 2011, after fading down to nothing in 2010.
Not only should the tax reductions be made permanent, but any politician who says they should not be or calls for more taxes, should be relegated to the heap of discarded presidential wannabes represented by George Bush Sr., John Kerry, Al Gore, and Michael Dukakis. After all, donâ€™t you think you can use that extra $1,800 more advantageously than your government?
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