Bush Tax Cuts Myths and Fallacies (3)
Myth
#3: Since the Bush tax cuts of 2003 “the rich” have not paid their fair share of federal income tax.
President Obama and Democrat leaders in Congress have decided that income tax rates for “the rich,” those earning more than $200,000, must be increased.
One of their justifications is the claim that at current rates these taxpayers are paying “less than their fair share.” But they always assert “the wealthy” aren’t paying their fair share. When asked how much the wealthy should pay their answer is always the same:
More!
.
Obviously, “fair” has no definition. But we thought it would be interesting to see just what portion of the total those being targeted for a tax hike actually do pay.
The above-$200,000 group includes only 3.1% of all taxpayers. In 2007 they paid 54.6% of all income tax revenue collected by the government, the highest in history. The 2007 percentage was almost ten points higher than the highest of the Clinton years.
As we reported here most of the taxpayers in the over-$200,000 bracket are small business, the employers who usually create most of the new jobs that lead America out of recessions. Obama and the Democrats should have to explain how they think a tax increase on these businesses would help create more jobs.
Heh. This the point when the bozos usually enter. “The rich only pay all the taxes because they make all the money.”
Lets have some facts.
From the CBO:
Income tax paid as a percentage of income -
Top quintile: 55%
Middle quintile: 15%
Lowest quintile: 5%
We have an amazingly progressive tax system.
And there is only so much the golden goose can produce.
I notice we haven’t heard from A Thousand Brain Cells – on their best day – recently. Maybe the economic environment doesn’t comport with their Obama stroking schedule.
Meanwhile, the unemployed ask why?
“The above-$200,000 group includes only 3.1% of all taxpayers. In 2007 they paid 54.6% of all income tax revenue collected by the government, the highest in history. The 2007 percentage was almost ten points higher than the highest of the Clinton years.”
These numbers are misleading, of course. The gap between rich and poor also increased during the Bush years more than any other time in history, save the 1920s.
From 2002-2007, the top 1% of households increased their income by 62%. In contrast, the bottom 90% increased by 4% during the same period. From 1992-2000, the top 1% increased by just over 40% while the bottom 90% increased by 30%.
Meanwhile, the top .1% of households increased their income by 94% over this period.
From ’02-’07 the share of the nation’s aggregate income earned by the top .1% (14,000 Americans earning more than $2 million per year) increased from 7.3% of all dollars earned to 12.3% — the highest increase of this cohort’s share in history. The top 1% (earning more than $400,000) increased their share from 16.9% to 23.5%
The last time the top 1% of Americans earned this much was in 1928, just before the Depression.
Simply put, the top 3.1% are contributing more tax dollars than ever before because they are earning a greater share of all dollars than ever before, and this growth in income inequality was a result of the Bush tax cuts. This is not a myth.
http://www.cbpp.org/cms/index.cfm?fa=view&id=2908
Why is it too much to ask that the Bush tax cuts expire? They were designed to expire.
Anon shows an ability to think critically and logically that is best described as “uh-none.”
He/she asserts that the Bush tax cuts are responsible for increasing income disparity. Really.
First, tax policy – oh, say, the Bush tax cuts -deals with after tax income, not pre-tax income. So let’s ask ourselves: if the issue is widening disparity in PRE-TAX income, what does tax policy have to do with that?
Case A: Tax policy doesn’t affect pre-tax income at all; tax policy and pre-tax income are totally uncorrelated. Hence, widening income gaps have everything to do with trade, regulation, education, changes in the economy and myriad other variables……..but not tax policy. So this renders Anon’s point pointless, and absurd. The Bush tax cuts have absolutely nothing to do with pre-tax income.
Case B: Tax policy does affect pre-tax income. This would be the point that most conservatives would make. That lower marginal tax rates induce investment, risk taking and work. And thus pre-tax income rises for those who can make it. So, yes, it might lead to increasing income disparity. But, Anon, are you really advocating that we abandon a tax policy that has increased aggregate GDP? Do you advocate a tax policy that reduces national income? Do you advocate a tax policy that reduces overall tax revenues on this higher income, just because, like a petulant brat, you don’t like the fact that your neighbor is getting more income? That’s crazy, stupid, unproductive and juvenile, all at once.
Lastly, I repeat. The CBO (that holier than thou non-partisan insitution) shows that the highest quintile pays a greater fraction of their pre-tax than any other quintile – by a country mile.
Anon – you are advocating a self destructive policy that will hark everyone. It seems to me that you are just pissed off because you don’t make more money, and you invent these theories out of thin air as a justification for being a parasite on your neighbors. If you want more money, get off your ass and go make some, instead of whining like an old women about the rich.
Drew, thank you for your even-handed and not at all insulting response.
The real thrust of my argument was that the highest percentage of tax revenues in history paid by the top earners was because they are earning a greater share than any time in history. Mr. Douglas implies that this is unfair, even though the rich earn more and are taxed less.
Tax policy does affect pre-tax income. And it affects the super-rich much more than anyone else – thus income disparity.
The re-investment of additional post-tax income increased GDP you say. However, the tax cuts did not increase GDP by any measurable degree. Under Bush, the annual GDP increased by an average of 2.6% (not counting the 2009 recession). Under Kennedy-Johnson, the average was 5.2%; under Clinton it was 3.6%; under Reagan it was 3.4%; under Carter it was 3.4%; under Nixon it was 2.7%.
The tax cuts did not increase tax revenue either. Federal tax revenue dropped from 21% of GDP in 2000 to 17.5% in 2008. They dropped to less than 15% of GDP after the 2009 recession.
It’s hard to argue that letting the tax cuts expire for the highest tax-bracket to Clinton-Reagan levels would lower national incomes, since there’s no historical data to back that up. Incomes grew at faster rates under previous tax-levels. Yes, it might slow income growth of the top 1%. But since we’ve seen little evidence of that wealth trickling down, I’m actually not that concerned. It would take a much more drastic change in tax-policy to see the average income of any tax bracket drop.
A flat tax might be drastic enough to damage the economy in a huge way. I’m not sure why you keep pointing out that we have a progressive tax system. This is not lost on me, nor is it lost on anyone else who advocates in letting the Bush tax cuts expire for the richest Americans. Perhaps you think that a flat tax would be more fair. I would love to see a coherent argument that backs that up.
The Super-rich have gobbled up all the economic benefits long enough. Bush policies have created a two tiered society: the mega-rich who live off so-called investments and everyone else, scrambling to keep head above water in a sea of corporate bullies.
Don’t believe this fairy tale about small business heroes selflessly hiring people to help them either.
Anon
You say tax cuts did not increase tax revenue but that just isnt true. The charts show revenue paid by the richest went up. And total Tax revenue also go up from 2003 when the tax cuts passed to 2008. I just looked it up.
Tax revenue was falling from 2000 to 2003. In 2003 it was $1,782,321,000,000. In 2008 it was $2,523,999,000,000.
You say taxes went down as a percentage of GDP but that’s because GDP went way up. In 2000 GDP was $9.821 Trillion. In 2008 GDP was $14.439 trillion. Thats a 47% increase in GDP. That is huge!
Even with the recession it was $14.237 Trillion in 2009.
Besides, Isnt it better if taxes are a lower percent of GDP?
Sarah,
Gross revenue increased, yes. That is to be expected in any recovery cycle. Did it increase at rates in line with historical trends? No. Revenues increased much slower than historical trends while economic growth remained effectively the same.
http://www.cbpp.org/cms/?fa=view&id=165
Bush’s own Treasury Department acknowledged decreased tax revenue (in contrast to what it would have been without the tax cuts), and they pointed out that the effect on national output would be only 0.7%
“If the revenue cost of that tax
relief is offset by reducing future government spending, the increase in output is likely be about 0.7 percent under plausible assumptions.”
http://www.ustreas.gov/press/releases/reports/treasurydynamicanalysisreporjjuly252006.pdf
Unfortunately, government spending was not reduced under Bush – quite the opposite, and so the tax-cuts were never paid for.
The reason tax revenue fell from 2000-2001 was because of the recession. From 2001-2003, the reason was the 2001 Bush tax-cuts and because employment did not begin to recover until 2002. Tax revenue increased from 2003-2008 because the economy expanded, but as pointed out above – revenue did not increase in pace with historical rates.
As far as looking at tax revenue as a percent of GDP, that is a common way to examine government spending and revenue as it automatically adjusts for inflation. You would be right that it would skew the numbers if GDP growth had been well-above average – but they weren’t. GDP growth was below average for recovery cycles. (Don’t infer that I am blaming Bush for this. A president can only be responsible for so much)
In fact, the CBO (that holier than thou non-partisan institution that Drew apparently will cite but not respect) attributes 48% of Bush’s budget deficit to his tax cuts.
http://www.cbpp.org/images/cms/9-27-06tax-f1.jpg
The tax cuts did not pay for themselves, and spending was not reduced in any way to offset the cost. Financing tax cuts with public debt only hurts long-term economic gains.
Anon says…
You’re welcome. I generally modulate my responses in line with the quality of the comment I’m responding to.
So are you willing to stipulate that tax policy has nothing to do with widening income disparity, which is exactly where you were going?
For the third time: CBO data – the rich do not pay less. They pay the highest amount in absolute dollars, and as a percentage of their income. Get your head out of your ass.
How?? And if as I stated, people should be yelling hooray!!! Found money!!
How? Can you make a coherent argument, or just spew tripe?
These last two paragraphs indicate you are either a) stupid, b) dishonest, 3) or a sophist. Picking certain dates (like in a recession) vs looking at data over time indicates you are either 1, 2 or 3. It might work in grade school, not here.
Well, President Obama’s own advisor, Christine Roemer, along with her husband, is the author of what is considreded the definitive work on the tax multiplier, which they put at 3. The tax increase contemplated is about 1% of GDP, implying a 3% GDP decline. Not my words, Ms Roemer’s. If you think this economy can withstand that please tell us how. And please be specific. No ethereal arguments.
Drew,
Your hostility makes a civil debate impossible. Not to mention you are quoting me out of context and flip flopping your own arguments.
You agreed earlier that tax-policy widens income disparity, and now you act like I’m crazy. As far as how much the rich pay – we both agreed that they pay more taxes than other quintiles. That is indisputable, common knowledge. All I said was that they were taxed a lower percentage than before the tax-cuts. Also indisputable. I was merely pointing out that, in contrast to the assertion of unfairness, there is nothing unfair about the highest quintile paying the largest share of taxes after that share was already reduced significantly by Bush. It appears as if you advocate a flat tax, but you haven’t come out and said it.
As far as average annual GDP, I removed Bush’s worst recession and left in other administrations’ recessions. There was no dishonesty in those numbers. Bush’s tax policy did not cause GDP to skyrocket in any measurable way. The post-2001 recovery was slower than any other post-recession recovery before it.
In citing Romer and Romer, you clearly failed to actually read or even skim the paper. Romer and Romer state that their model is based on one where tax cuts are either met with spending reductions (which did not happen in the case of Bush), or tax increases are not related to inherited deficits (which is currently the case – and yes, I concede that Obama has increased spending well beyond what he inherited).
http://economics.ucr.edu/seminars/fall06/ets/Romer11-27-06.pdf
http://emlab.berkeley.edu/users/dromer/papers/RomerandRomerAERJune2010.pdf
Here’s the deal: this will be my final comment on this blog entry, though I may comment on future entries. I expect you will call me poor, stupid, or a liar based on my views that are also held by those who are rich, intelligent, and honest (as are your views). I’m not sure how you can get so worked up about tax policy. The theories that support both of our views are based on economic models which are vast oversimplifications of a system that is far too complex to summarize in a 30 page economics paper. The experts have not come to anywhere near a conclusion on anything we’ve discussed, so frankly, the “get your head out of your ass” comments are probably not the most mature way to debate economics.
Anon -
There you go again.
“Your hostility makes a civil debate impossible. Not to mention you are quoting me out of context and flip flopping your own arguments.”
I don’t suffer fools well, and you are free to make your case about “out of context” or Flip flopping.” Good luck.
“You agreed earlier that tax-policy widens income disparity, and now you act like I’m crazy.”
No I didn’t, and now, thanks to your response, I know who you really are – a flat damned liar. I put up a hypothetical: either tax policy had zero effect on pre-tax income, rendering your argument about Bush tax cuts moot. Or, it affected pre-tax income. And in making that supposition I pointed out that we could only presume that widening pre-income tax income disparity was the result of the incentive effects of lower tax rates. Who wouldn’t want that? And leaves you in a weak position, eh, Anon?
“As far as how much the rich pay – we both agreed that they pay more taxes than other quintiles. That is indisputable, common knowledge. All I said was that they were taxed a lower percentage than before the tax-cuts.”
And all that I said was the CBO says you are wrong. That’s the fourth time. They are taxed at a hugely disproportional rate.
This is the crazy part of the debate and the portion that defies description. With lower MARGINAL tax rates, the rich pay more. I’m OK with this; you are apparently not. But with my philosophical position I’m OK with the rich paying more in absolute dollars. Why? Because they can make more pre-tax income!!!! So, net, they make more. Duh. You? You come from a punative point of view. You want higher MARGINAL rates because you have some notion of Robin Hood. But your view is self defeating. Its just plain stupid.
THe rest of what you wrote is pretty much partisan gibberish………but I am compelled to note. Ms Roemer has apparently decided to vote with her feet. Heh. Good luck with your arguments as the rats flee the ship, Anon.
Dickhead.