Bush Tax Cuts Soak The “Rich”
One of our frequent “commenters” and friends of Pundit Review “Doug H” had this to say about my previous post “More Surprising Economic News” (below) which cited official US Treasury Dept data showing sustained job growth (lowest unemployment in 5 years) and real wage growth accross the board for all Americans (not just the “rich”):
Perhaps those in the polls are relying on a different set of dataâ?? their pay stubs. Just a guess. But, when the rising tide lifts all boats, I guess those poor boatless suckers will just drown.
Well, today more positive “surprising” economic data was reported that has demonstrated once again for the umpteenth time that the Bush 2003 Tax Cuts “Soaked the Rich.” One would think the liberal Dems who consistently opposed the Bush Tax Cuts as “Tax Cuts for the Rich” would be celebrating.
Today’s Wall St. Journal Lead Editorial Reported:
The real news, and where the policy credit belongs, is with the 2003 tax cuts. They’ve succeeded even beyond Art Laffer’s dreams, if that’s possible. In the nine quarters preceding that cut on dividend and capital gains rates and in marginal income-tax rates, economic growth averaged an annual 1.1%. In the 12 quarters — three full years — since the tax cut passed, growth has averaged a remarkable 4%. Monetary policy has also fueled this expansion, but the tax cuts were perfectly targeted to improve the incentives to take risks among businesses shell-shocked by the dot-com collapse, 9/11 and Sarbanes-Oxley.
The John Kerrys of the world who claimed that the Bush tax cuts were “irresponsible” and would “balloon the deficit” were dead wrong:
Remember the folks who said the tax cuts would “blow a hole in the deficit?” Well, revenues as a share of the economy are now expected to rise this year to 18.3%, slightly above the modern historical average of 18.2%. The remaining budget deficit of a little under $300 billion will be about 2.3% of GDP, which is smaller than in 17 of the previous 25 years. Throw in the surpluses rolling into the states, and the overall U.S. “fiscal deficit” is now economically trivial.
For critics such as our friend “Doug H” who imply that the booming economy has only benefited the “rich”:
Individual income tax payments are up 14.1% this year, and “nonwithheld” individual tax payments (reflecting capital gains, among other things) are up 20%. Because of the tax cuts, the still highly progressive U.S. tax code is soaking the rich. Since when do liberals object to a windfall for the government?
Again, the “rich” (those in the top 5% pay almost 70% of all the income taxes in this country- while the bottom 50% pay less than 4%) Will liberals who claim every accross the board “progressive” tax cut only beniefits the “rich” not be satisfied until the top quintile of workers are paying 100% of all federal and state income taxes?
The bottom line is that the Bush Tax Cuts have been an enormous success especially given the inexorable liberal-Democratic opposition to these pro-growth tax cuts on individual, investment, and business income. Add to this natuaral disasters such as Hurricane Katrina, 9-11 and the ongoing WOT, as well as high gas prices, and this sustained economic growth is really unbelievable.
Now, Bush and the GOP Congress should push agressively to make these 2003 Tax Cuts permanent. If they really wanted to see north of 8% GDP they would get serious about real pro-growth fiscal policy such as a 12% flat tax, 0% capital gains and dividends tax, and permanent abolishment of the immoral Death Tax.
Check out the abundance of posts that both Kevin and I have done that demonstrate that the Bush 2003 Tax Cuts and Accross the Board Supply Side Tax Cuts in gereral have been an enormous success for all Americans at all income levels, have generated more tax revenue-not less as Dems predicted- thereby reducing the deficit (ceteris paribus), have mostly “soaked the rich”, and have led to the lowest unemployment rate in more than a generation now at 4.6%-full employment (lower than the average of the 90s “Clinton Boom Years”).
For more on how the Bush tax cuts have lifted all “boats” not just the “rich” check these posts out:
http://www.punditreview.com/2006/06/13/a-question-for-the-tax-cut-o-phobes/
http://www.punditreview.com/2006/05/12/this-just-in-2003-bush-tax-cuts-a-success-2/
http://www.punditreview.com/2006/05/12/bush-tax-cuts-soak-the-rich-2/
http://www.punditreview.com/2006/04/18/hillarys-talks-down-economy-is-she-credible/
July 12, 2006 3:20 pm 
As far as % of tax payments go for each bracket, a better indication, as always, of how taxes affect individiuals is percentage of personal income (i.e., 10% of $100 million will always be much, much more than 10% of $20,000, and 5% of $20,000 has more of an impact on an individual than the 10% of $1 million). What my taxes represent as a % of the whole tax intake says nothing about how they affect me personally.
I do not have those numbers, but if you do, fire away– they may actually show that the pain is still felt more by the uber-rich (I have no problem with that). I think Kevin answered this question for me at some past point, but it may have been off-line.
In any case, that thinking is the source of my “rising tide” joke. (Also, I would say that the higher contributions of the rich is the Christian thing to do–giving back to society = love thy neighbor– but the concept of tithing suggests that God is a flat-taxer).
The main point I would draw out of my comment is– where is the disconnect that results in the bad poll numbers on Bush’s handling of the economy? These feelings have to come from somewhere, and I think blaming the “Liberal” media, that regurgitates the spoon-fed positive numbers as much as it doubts them, is too simplistic.
Doug you say “I do not have those numbers, but if you do, fire awayâ?? they may actually show that the pain is still felt more by the uber-rich (I have no problem with that). I think Kevin answered this question for me at some past point, but it may have been off-line.”
That was the point of my post and links provided. Yes the “rich” pay a disproportionately high proportion of all taxes-the Bush tax cuts were the most progressive in history. Check out the aundance of links I provided.
You say: “The main point I would draw out of my comment isâ?? where is the disconnect that results in the bad poll numbers on Bushâ??s handling of the economy? These feelings have to come from somewhere, and I think blaming the â??Liberalâ?ť media, that regurgitates the spoon-fed positive numbers as much as it doubts them, is too simplistic.”
Answer: The constant negative coverage and pessimistic news stories and analysis of the anit-Bush elite media. This has been well documented. As you know the persistent negative news and analysis makes an indellible imprint on the natinal psyhce influencing economic perceptions.
Cheers,
Gregg
3 of your links are to the same post– might want to check that out. My answer might be in one of the missing links.
(note the unironic use of “missing link”)
Doug,
Start from the table at this BizzyBlog post:
http://www.bizzyblog.com/?p=2135
The percentage of all income taxes paid by the uber-rich, whether you consider it the top quintile (down 0.4%), top 10% (down 1.0%), top 5% (down 1.5%), or top 1% (down 2.1%) has indeed dropped a bit points from 2001 through 2004. Ignore 2005 and 2006; they’re guesstimates based on assumptions that haven’t been working for years, and I believe that when actual results are published, we’ll find that the uber-rich share of total taxes will be higher than estimated.
But what is happening, especially since the 2003 cap gains cuts, is that the rich are moving their investments around more and generating lots of cap gains and cap gains taxes in the process. It’s one thing to have to pay what I think used to be a 20%-28% tax on all gains; that tended to keep alot of investments locked in. But with the rate down to 10%-15%, investors are more willing to pay the cap gains tax if they see better opportunities elsewhere. Those better opportunities over time translate into a faster-growing economy for everyone.
When you have more cap gains transactions, you have more income reported. I believe we will see this as the IRS releases detailed data. The amount of income the upber-rich will be reporting will be much higher, and the amount of tax they are shown as paying will also increase. Nothing else can really explain the tidal wave of income-tax cash coming in.
Two other things to consider in looking at the table at my post:
- One, The Alternative minimum tax is snaring a lot of people in the Middle and 4th quintiles for the first time, and forcing them to pay more than they would if it didn’t exist (sort of an unlegislated tax increase, which I think Congress fixed earlier this year).
- Second, what is coming in from the corporate income tax has increased by a huge amount, and it can’t be explained by looking only at the earning of publicly traded companies, which have increased, but not by enough to explain the increased receipts. All I can figure is that a lot of smaller corporations that are “C corps” (paying tax at the corporate level, as opposed to “S corps” where the income flows through to individual returns) are going gangbusters and paying a ton of corporate tax. Most of these companies’ owners are likely in the top quintile, and if those taxes were added to the top quintile at the individual level, the share paid by that top quintile would probably increase by a couple of points.
It’s also worth noting that the bottom half of all taxpayers (the bottom two quintiles and half of the third) have essentially paid a net amount of about 0% to 2% of all income tax during the past 5 years.
Doug sorry about the link screw up. But the answer to your question is in my original post above where I quote:
“Individual income tax payments are up 14.1% this year, and â??nonwithheldâ?ť individual tax payments (reflecting capital gains, among other things) are up 20%. Because of the tax cuts, the still highly progressive U.S. tax code is soaking the rich. Since when do liberals object to a windfall for the government?”
There is an abundance of empirical economic data that shows that the “rich” (top 5%) pay aobut 70% of all taxes. Should they be paying 90% of all taxes or perhaps 100%? How much more can you “tax the rich” before you kill the goose? The fact of the matter is that the bottom 50% of all workers pay less than4% of all income taxes. The tax code is heavily geared toward “taxing the rich,” That’s why the Bush Tax Cuts are the most “progressive” in U.S. History. The “rich” have never paid as much as a % of total taxes as they are paying now. Not that I think that is a good thing. But that is a subject for a different post.
Gregg
Doug,
Start from the table at this BizzyBlog post:
http://www.bizzyblog.com/?p=2135
The percentage of all income taxes paid by the uber-rich, whether you consider it the top quintile (down 0.4%), top 10% (down 1.0%), top 5% (down 1.5%), or top 1% (down 2.1%) has indeed dropped a bit points from 2001 through 2004. Ignore 2005 and 2006; theyâ??re guesstimates based on assumptions that havenâ??t been working for years, and I believe that when actual results are published, weâ??ll find that the uber-rich share of total taxes will be higher than estimated.
But what is happening, especially since the 2003 cap gains cuts, is that the rich are moving their investments around more and generating lots of cap gains and cap gains taxes in the process. Itâ??s one thing to have to pay what I think used to be a 20%-28% tax on all gains; that tended to keep alot of investments locked in. But with the rate down to 10%-15%, investors are more willing to pay the cap gains tax if they see better opportunities elsewhere. Those better opportunities over time translate into a faster-growing economy for everyone.
When you have more cap gains transactions, you have more income reported. I believe we will see this as the IRS releases detailed data. The amount of income the upber-rich will be reporting will be much higher, and the amount of tax they are shown as paying will also increase. Nothing else can really explain the tidal wave of income-tax cash coming in.
Two other things to consider in looking at the table at my post:
- One, The Alternative minimum tax is snaring a lot of people in the Middle and 4th quintiles for the first time, and forcing them to pay more than they would if it didnâ??t exist (sort of an unlegislated tax increase, which I think Congress fixed earlier this year).
- Second, what is coming in from the corporate income tax has increased by a huge amount, and it canâ??t be explained by looking only at the earning of publicly traded companies, which have increased, but not by enough to explain the increased receipts. All I can figure is that a lot of smaller corporations that are â??C corpsâ?ť (paying tax at the corporate level, as opposed to â??S corpsâ?ť where the income flows through to individual returns) are going gangbusters and paying a ton of corporate tax. Most of these companiesâ?? owners are likely in the top quintile, and if those taxes were added to the top quintile at the individual level, the share paid by that top quintile would probably increase by a couple of points.
Itâ??s also worth noting that the bottom half of all taxpayers (the bottom two quintiles and half of the third) have essentially paid a net amount of about 0% to 2% of all income tax during the past 5 years.
Comment by Tom Blumer â?? July 12, 2006 @ 5:37 pm
That last post was excellent– the capital gains taxes bit especially is an eye-opener as to how a tax cut can actually create revenue. This is the sort of thing that is never explained to people when these taxes are proposed (I never hear it).
However, I don’t think my other point is coming across about personal income. I understand that the top earners shoulder the largest burden of the total tax pie. That will be true when comparing the top earners to the lower earners no matter what the tax rate.
My question is, what is the average percentage of a person’s personal income paid to taxes? In other words, what do people pay relative to their own incomes, rather than relative to the entire revenue pay. After all, that is the number that matters most to individuals when they look at their pay stubs or file their tax returns.
I suspect the number may be quite progressive, but I don’t see it in your table.
Kevin knows what I am talking about, and I think he knew where to suus out that info– Kevin?
Doug,
Good question! The answer to your question is in my original post but I will provide further clairification.
The bottom 50% of wage earners in this country pay virtually no federal and state income tax. President Bush’s 2003 Tax cuts took about 12 million additional Americans off the tax rolls. So to answer your question, the bottom 50% of wage earners pay virtually no federal taxes. So the % of their income designated for taxes is about 0%. In fact because of the EITC (earned income tax credit), 2005 Child Credit,TANF payments, and SSI benefits, those in the bottom 50% (the bottom two and a half quinitles), actually get money back from the govt (paying negative net effective tax rates in essence). According to the Heritage Foundation:
“All in all, the number of tax filÂers with zero or negative income tax liability rose from 30 million to 40 million.[5] The remaining tax filers received lower income tax rates, lower investment taxes, and lower estate taxes from the 2001 legislation.”http://www.heritage.org/Research/Budget/bg1912.cfm
That is why I referred to the Bush 2003 Tax Cuts as the most “Progressive” in history in that the “rich” (those in the top quintile earning an average of about $202,000 combined family income) paid an historically and disproportionately high % of total income taxes. According to Heritage:
“Consequently, from 2000 to 2003, the share of all individual income taxes paid by the bottom 40 percent dropped from zero percent to â??2 percent, meaning that the average family in those quintiles received a subsidy from the IRS. By contrast, the share paid by the richest quintile increased from 81 percent to 85 percent. Clearly, the tax cuts have led to the rich shouldering more of the income tax burÂden and the poor shouldering less.”
It is also interesting to note that for those who claim that the poor are receving less of overall spending which is of course at record levels that:
According to the OMB, anti-poverty spending is up 39% under Pres Bush from 2001 to 2005.http://www.heritage.org/Research/Budget/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=94078
As of 2004 16.3 percent of the federal budget was spent on anti-poverty programs (a record).
Prior to that spending on anti-poverty programs as a % of the federal budget according to the CBO:
4.3 percent in 1970,
8.6 percent in 1980,
9.1 percent in 1990,
14.9 percent in 2000
“Contrary to the rhetoric claiming that President George W. Bush has slashed antipoverty spending, its proportion of the budget has actually risen from 15.3 percent to over 16 percent since 2001.” http://www.heritage.org/Research/Budget/bg1912.cfm
Here are the exact figures from the CBO (Congressional Budget Office) for 2005.
Share of Total Federal Tax Liabilities 2005
Lowest
Quintile 1.3%
Second
Quintile 5.4%
Middle
Quintile 10.4%
Fourth
Quintile 18.8%
Highest Quintile 64.0%
Now to answer your question you posed: “My question is, what is the average percentage of a personâ??s personal income paid to taxes?”
In 2005 according to the CBO:
Share of Individual Income Tax Liabilities
Lowest
Quintile -1.5 %
Second
Quintile 1.6%
Middle
Quintile 6.5%
Fourth
Quintile 15.4 %
Highest Quintile 78.1%
source: http://www.cbo.gov/showdoc.cfm?index=5746&sequence=1
Bottom line: As an average % of their income the “rich” (those in the upper 20% quintile) are paying more as a % of their income then ever before in history. The “poor” those in the lowest 20% (bottom quintile) end up paying virtually no income taxes and actually pay negative net effective taxes when EITC, Child Credit, SSI, TANF, Medicaid and other anti-poverty subsidized programs are figured into the equation. Relative to their own incomes those in the bottom quintiles pay considerably less as a % of thier income as those in the top quintiles.
Hope that answered your question Doug.
Cheers,
Gregg