According to the Treasury Department, there have been 19 significant federal tax cuts since the end of World War II. Three of them, including the $350 billion tax relief package signed last week, were enacted under the Administration of George W. Bush—the Economic Growth and Tax Reform Reconciliation Act of 2001 (EGTRRA), the Job Creation and Workers Assistance Act of 2002 (JCWA), and now, the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA).
The Tax Foundation of Washington, D.C. has contrasted George W. Bush’s combined tax cuts of 2001, 2002, and 2003 with the two largest tax cuts in the post-WW II era—the Kennedy tax cut in 1964, and the Reagan tax cut in 1981. The Bush tax cuts taken together comprise 2.0% of annual national income (as measured by Net National Product), compared with 1.9% for the Kennedy cuts and 1.4% for the Reagan cuts. In constant (2003) dollars, the Bush tax cuts taken together comprise $188 billion, compared with $55 billion for the Kennedy cuts and $69 billion for the Reagan cuts. When taken as a percent of the entire federal budget, with tax cuts treated as though they were part of total spending, the Bush tax cuts comprise 8.1% of the budget while the Kennedy cuts were 8.8% of budget and the Reagan cuts were 5.3%. (The Tax Foundation contrasts only the first year estimate of the cost of each plan because long-term scoring of tax bills was not done in 1964.)
During the debate on the most recent tax cut, President Bush talked like he intends to make tax cutting an annual event. This would be good news for Americans. Truly, George W. Bush is the biggest tax cutting president in any of our lifetimes.
The $350 billion JGTRRA tax relief package will lower taxes on all taxpayers over the next ten years. Americans for Tax Reform (ATR) reports that the plan will accelerate President Bush’s June 2001 tax relief provisions while cutting the top rate of taxation on dividend income from 38.6% to 15% and lowering the top tax rate on capital gains from 20% to 15%. The plan also allows increased tax-free capital investment by small businesses, and bonus depreciation on investments made between 2003 and 2005.
The plan will immediately phase in marginal rate cuts scheduled for later years in the June 2001 plan, including expanding the new 10% tax bracket in 2003 and 2004 which would have occurred in 2008. The plan moves the endpoint of the 10-percent tax bracket from $12,000 to $14,000 for married couples and from $6,000 to $7,000 for single taxpayers. The reductions in income tax rates in excess of 15% scheduled for 2004 and 2006 are accelerated to 2003, resulting in new rates of 25%, 28%, 33% and 35% (from 27, 30, 35 and 38.6, respectively). The bill also accelerates the reduction of the Marriage Penalty and the increase in the child tax credit.
For investors and shareholders, who ATR says now make up 52% of American families and 70% of voters in the 2002 midterm elections, the bill will cut the highest tax rate on dividend income from 38.6% to 15%, and capital gains from 20% to 15%. Conservative estimates suggest that this move will increase the stock market by 6-20%, spurring the economy and benefiting all Americans.
NO GOOD DEED GOES UNPUNISHED
The spenders hate this latest tax cut, calling in irresponsible in light of the war and returning deficits. But the most constant complaint we hear about tax cuts is that they benefit the rich. Over the years the liberals have successfully created a tax system which seeks to punish success in our country. Now, they complain that tax cuts in that system inadvertantly benefit those who pay the most taxes.
There is a popular parable with an anonymous author which helps even simple minds understand why tax cuts benefit those who pay the most taxes:
Everyday, ten men went to lunch. Diner number one had the lowest earnings while diner number ten earned the most. The lunch bill totaled $100. If this lunch tab were paid in the same proportion Americans pay taxes, the first five men would pay 80 cents each; the next four would pay $7.50 dollar each; the tenth diner would pay $66.
The ten men ate lunch in the restaurant every day and seemed quite happy with the payment arrangement until the restaurant owner decided to reduce the cost of the lunch by $20. Lunch would now cost $80, which raised the question: how would the bill be paid now? Splitting the $20 savings evenly among the ten men would mean that the lowest paid five men would actually make a profit by eating lunch because they would be receiving $2 each when they had been paying only 80 cents each.
The restaurant owner suggested that it would be fair to reduce each diner’s bill across the board 20 percent since the total lunch price had been reduced by 20 percent. Consequently, the first five men were expected to pay 64 cents each. The next four would be expected to pay $6 each while the wealthiest diner was asked to pay $52.80.
However, once the men left the restaurant, they began to compare their savings. The five lowest paid men noticed that they had only received a savings of 16 cents each while the wealthiest diner had received a savings of $13.20, which was 1,550% more than what the five lowest paid men received combined.
The five lowest paid diners complained that the wealthy diner received most of the savings. In a similar fashion, some complain that the tax system is “unfair” when the “wealthy” receive the biggest benefit from tax cuts, but those who pay the most taxes receive the most benefit from tax reductions.
WHO PAYS THE TAXES ANYWAY?
The monotonous liberal mantra that America’s federal income tax system is far less burdensome for the so-called rich is simply not true. It is an attempt to justify in the minds of the American public the correctness of the “Soak the Rich” approach to taxes. It is class warfare at its finest.
Debunking the myths of liberal tax policy, the National Taxpayers Union Foundation (NTUF) showed that the government’s definition of “rich” includes more than millionaires. The Internal Revenue Service’s (IRS) top quarter of earners began at $55,000 in the year 2000 – as shown in the accompanying statistical comparative – while the wealthiest tenth began at $92,000. In some portions of the U.S., $92,000 amounts to an upper-middle-class lifestyle. In fact, those making $92,000, the so-called “rich”, would include the combined teacher salaries of a Utah married couple, each with a Masters Degree and fourteen years experience teaching in the Jordan School District. In addition, 52 percent of U.S. households now own stock; giving lie to the left’s argument that Bush’s proposal to end double-taxation of dividends benefits only a fortunate few.
Are the wealthy paying their fair share? The IRS’s most recent statistics show that the top quarter, those earning $55,000 or more, are paying 84 percent of the total federal income tax collections in the year 2000 (the most current year available), while top half of income earners accounted for virtually the entire amount (96 percent) and the highest-earning tenth accounted for a lion’s share (67 percent). The various levels of income brackets are disproportionate to the percentages of taxes paid.
The greater amount of total taxes paid by the wealthy is not just a matter of the same percentage applied toward a bigger income, but rather a higher percentage applied to a larger income. Taxpayers that grossed $92,000 or more accounted for about half of the total Adjusted Gross Income (AGI) but paid two-thirds of the taxes. This trend continued up the income scale, but actually reversed itself on the way down. Therefore, the wealthy are paying more than their fair share.