All the lefties that are screaming about tax breaks for the rich should apparently be thanking the Bush administration and supporting the Republican tax cuts. It seems that the Bush tax cuts did cut taxes for the middle class and made the so-called rich pay a higher proportion of the tax burden. Add to that the fact that tax revenues are at an all time high and the fact that GW’s “compassionate conservativism” makes him spend money like a drunken soldier and all the socialists out there should be singing GW’s praises.
The debate over the impact of the Bush tax cuts will continue for many years, but new IRS data, just published for tax year 2004, will certainly shape that debate by showing that the code was more progressive in 2004 than it was in 2000. This trend also sheds light on the surge of revenue that has cut the federal deficit so sharply in the summer and fall of 2006.
Some commentators try to change the definition of tax progressivity, either to prove that high-income people are paying too much or too little. Here we use the widely accepted definition: a tax system is progressive if high-income people pay a larger fraction of their income in taxes than lower-income taxpayers.
For each income group of U.S. taxpayers, we compare the shares of tax paid to the shares of income earned (see Table1 ). A ratio of tax share to income share for each group in 2000 and 2004 shows how progressivity has increased. In the rightmost column of the table, we show the change in the tax-to-income share ratio. A positive number means the income group’s tax share has grown faster than its income share. If the number is negative, the income share has grown faster than the tax share.
In a purely proportional income tax system, each income group’s share of tax payments would be the same as its share of income. For example, if tax returns with AGI between $200,000 and $500,000 accounted for 9.97% of income (as they did in 2004 – see table), then they would pay 9.97% of the taxes. And if tax returns with AGI between $40,000 and $50,000 accounted for 6.97% of income (as they did in 2004), then they would pay 6.97% of the taxes. That is, in a proportional tax system, the ratio of tax share to income share is equal to 1. Because our system is progressive, the $200,000-to-$500,000 group didn’t pay 9.97%; they paid much more, 17.89%. And the $40,000-to-$50,000 group didn’t pay 6.97%; they paid much less, 4.20%.
Because all of the major Bush tax cuts took effect in May 2003, tax year 2004 is the first to reveal their full effect. For many who predicted that these cuts only benefited “the rich,†this data showing greater progressivity will be a surprise. …
Many reporters have settled on $200,000 as the income threshold for being “rich.†Whether this is true or not, it turns out that the $200,000-and-over crowd is the only income group to have its share of the nation’s income shrink while its share of tax payments grew.
In 2000, tax returns with an adjusted gross income over $200,000 earned 26.7 percent of all income, and they paid 47.3 percent of all income taxes. That’s a tax-to-income share ratio of 1.79. Four years later in 2004, their share of income had fallen from 26.7 to 25.5 percent, but their share of taxes had risen to 50.0 percent. That brought the ratio up from 1.79 to 1.96 in 2004.
The biggest winners were in the $25,000-to-$30,000 range. If the Bush tax cuts are the determining factor, then the logical conclusion is that the new 10-percent bracket and the doubled child credit caused dramatic reductions in tax payment. As a result, the ratio of tax share to income share was cut in half.
So the next time you hear a Democrat, running for office, say something about “tax cuts for the rich,” you can set them straight and let them know that the Bush tax cuts are everything they have always claimed to want. You can then add that if they have an honest bone in their body, they’ll admit they were wrong and encourage you to vote Republican.
