Political Opinions from the RIGHT
The Bush Tax Cuts
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t’s an article of faith of those on the left that taxes should be raised to pay the extraordinary costs of fighting a war. However, the idea that raising taxes is the best long term policy is questionable at best.
Financing wars invariably drives politicians to look for ways of increasing revenues, but the Democrats and Republicans are usually on opposite sides of the question about how it should be done. Both political parties are equal opportunity spendthrifts, and although neither side can legitimately claim that they keep a tight rein on the public purse, historically the Democrats have been the principal exponents of big government and big budgets, especially for social programs.
But, the difference between the two parties on the taxation issue is not based on the principle that we must pay for the extraordinary costs of waging a war. It’s how they believe it should be accomplished. And, nowhere is that difference more profound than their respective beliefs about how our economy works.
Liberals generally believe it is a zero sum game, that spending money normally requires taking it from somewhere or someone else; hence it’s necessary to increase taxes. Conservatives, on the other hand, argue that tax revenues are increased by expanding the economy, that reducing taxes results in the expansion of existing businesses and formation of new ones, which in turn grows the economy and increases employment, thereby generating more tax dollars.
The weakness of Liberal logic about taxes is the belief that people do not change their behavior when confronted with higher taxes. In other words, raise taxes and taxpayers will not adjust accordingly, that is, look for ways to avoid paying them. Liberal tax analysis is usually based on this premise, so their financial models tend not to factor in peoples’ responses to higher taxes. But, the public is not stupid. They invariably find ways to adjust when taxes go up. It may involve deferring income or investing in tax free instruments, or perhaps something more complex, such as not expanding an existing business or starting a new one, which means less tax revenue for the government.
A good example of this occurred when a misguided attempt to tax luxury items in the 1990s backfired after a special tax was imposed on new yachts. The result: American customers bought boats outside the U.S. or just didn’t buy, which caused cutbacks and the failure of many U.S. companies, along with the attendant loss of jobs in the boat-building industry.
Tax policy is now front and center as the candidates vie for the nominations of their respective parties to represent them in the 2008 Presidential election. The Democrats are arguing that Bush should not have cut taxes, asserting that reducing taxes and his out-of-control spending have put us into a deeper financial hole. They buttress their claims with the usual canard of the left that the Bush tax cuts favor the “rich,” which makes his policy an even greater sin.
Looking at the zero sum versus the expanding economy concepts, it’s well documented that tax cuts increase the revenues that flow into the federal treasury. Two notable examples clearly illustrate this principle, one Democrat, the other Republican: John F. Kennedy (JFK) and Ronald Reagan both cut taxes and both generated huge increases in federal revenues as a result. W. has done the same, although the left refuses to give him credit for it, claiming that his tax cuts only benefit the rich and have not really stimulated the economy. But, the results say otherwise.
The American economy is doing quite well, thank you very much, which those on the right attribute to Bush’s tax cuts. The left, of course, continues to assert that the economy is not all that good, in spite of record high corporate profits, the stock market at an all-time high, full employment, and a significant increase in federal tax revenues. Their criticisms are based on the premises that there are too many Americans living at or below the poverty level, that the rich are getting richer at the expense of the poor, and that tax policy should also be used to redistribute income and wealth. Underlying all of this is the belief that the government knows better how to spend taxpayers’ money than the people do themselves. You either subscribe to this thinking or you don’t. I don’t.
As to Bush’s tax cuts favoring the rich, it’s hard to defend this position in light of the Internal Revenue Service’s (IRS) own statistics.
Although arguments about this subject have raged back and forth for decades, generally focusing on making the “rich” pay their “fair share,” the media rarely provides specific details about who actually pays the most taxes, or the least.
Facts generally don’t seem to matter much in these highly politicized arguments, but the most recent available IRS statistics (for 2004) pretty well tell the story:
l Only half of all taxpayers pay 96.7 percent of the income tax (federal). Putting it another way, almost half of all wage earners pay no income tax at all.
l The top 1 percent of wage earners (the “rich”), who earn 19.0 percent of the total Adjusted Gross Income (AGI), pay over one-third (36.89 percent) of the total federal income taxes collected.
l The top 5 percent of wage earners (the “rich”) earn 33.45 percent of the total AGI but pay over half (57.13 percent) of all federal income taxes.
l The top 10 percent of wage earners (the “rich”), who earn 44.35 percent of the total AGI, pay over two-thirds (68.19 percent) of all income taxes, and
l The top 25 percent of wage earners (the “rich”?) earn 66.13 percent of the total AGI, but pay almost 85 percent of the total federal income taxes received.
It’s clear that the tax burden is heavily skewed against those with higher incomes, some would say punitive, while almost half the filers pay no income tax at all.
Is this the “fair share” that people keep talking about? Just how “fair” should it be? Should the top 5 or 10 percent of the wage earners pay 80 percent of the income taxes? Or 90 percent? And, is it “fair” that almost half of all wage earners pay no income taxes at all?
Many of those who argue that the “rich” should pay their “fair share” of the income tax burden would no doubt be shocked to realize that they are probably defined as “rich” themselves. If the Adjusted Gross Income on their tax returns is a slightly over $57,000, especially if they itemize deductions and are subject to the Alternative Minimum Tax (AMT). So, when politicians talk about the “rich paying their fair share,” they may mean everyone whose income is in the $50,000 to $60,000 range. Surely these taxpayers are a long way from being rich.
The Bush tax cuts have not really altered the progressive structure of our tax system and, as is clearly seen from the IRS stats, the “rich” continue to bear most of the income tax burden. As is generally the case with changes in the tax laws, the Bush tax cuts didn’t do much more than tinker around the edges.
What most people never seem to realize is that the greatest percentage of taxes is always paid by the middle class, because that’s really where the money is, by virtue of the fact that there are simply more of them. No matter how much politicians obfuscate and mislead the public about what they are doing, it’s really just a numbers game. And when they start talking about taxing the other guy, look out, that generally means us - you and me.
© 2007 Harris R. Sherline,
All Rights Reserved