Cementing Bush’s tax cuts

2004.04.03 — Business | Taxes | by BB Rodriguez

George W Bush wants his trillion-dollar tax cuts made permanent (they will expire by 2010) to ensure the prosperity they bring is cemented in place. But to whom do the cuts bring prosperity in the first place?

The answer can be found easily enough at the president's own website. The truth about the Bush tax cuts is that they are fundamentally skewed toward the affluent and the super-rich. Less taxes are always better... if the reductions are accompanied by spending cuts, but Bush's were accompanied by huge increases in spending. Apparently the president thinks deficits are good economics (the Brookings article cited above—and common sense—directly refutes this).

First, here's the president's view of it:

President Bush’s tax relief plan reflects this basic trust in the American people and confidence in the American ideal by increasing tax fairness and enhancing the performance of the economy. It includes:

• Replacing the current tax rates of 15, 28, 31, 36, and 39.6 percent with a simplified rate structure of 10, 15, 25, and 33 percent (see Appendix for rate schedule);
• Doubling the child tax credit to $1,000 per child and applying the credit to the Alternative Minimum Tax (AMT);
• Reducing the marriage penalty by reinstating the 10 percent deduction for two-earner couples;
• Eliminating the death tax;
• Expanding the charitable deduction to non-itemizers; and
• Making the Research and Experimentation (R&D) tax credit permanent.

What does the White House mean by "tax fairness"? A flatter tax system. That is, big cuts for fat cats. The administration is fond of saying things like this:

Real Tax Relief for Real Families:

When President Bush's proposal is fully in place, the typical family with two children will receive at least $1,600 in tax relief. This is real and practical help.

Only it's not. The $1,600 is an average, not "typical" or "real" at all. You'll be sharing that $1,600 with Bill Gates, and guess who gets the bigger piece of that pie....

The administration is also able to fudge the numbers a bit by quoting statistics for families with children, since the child tax credit gives a substantial break. While this is admirable, rich families have children too, and therefore get the same break. The fact that it represents a bigger portion of your paycheck doesn't make it bigger for you.

Imagine if I were handing out $100 bills on the street corner. I give one to you and one to the CEO of a Fortune 500 company. Would you think you got more than he did?

The only honest way to judge fairness is to look at the tax brackets in isolation. Take a look at the charts on the right. Each little yellow box represents a one percentage point reduction in the federal income tax rate for the tax bracket. We see that singles making no more than $6,000 saw their rate reduced five percentage points, from 15% to 10%. That's great... for college kids working part-time.

But there's no help at all for ordinary working folks. Bupkis. Nada. Zilch. No relief. If you are married filing jointly and making between 12 and 45 grand, you got shafted. Actually, if you made less than 35 grand, you probably got shafted no matter who you are. Those making more are the ones getting the help.

The sweet spot for couples is the 110 to 150 grand range, where you got a six point reduction in your tax rate. Any higher and Bush wasn't quite so generous... unless you happen to be in the top 1% of wage earners in America.

Yes, if you're one of the lucky ones making more than 300 Gs, George W Bush wants to keep stuffing your pockets with cabbage for at least a few more years. You got a 6.6 point reduction in your income tax rate, the biggest of all. If you earned, say, $1 million for the year (the average for the top 1%), that's $66,000 you got to keep. What did you do with the extra scratch? George W Bush thinks you're planning to hire extra workers with it.

I'm betting you contributed some of it to his re-election campaign.

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