Wednesday, December 5, 2012

Bush tax cuts are the new normal

American progressives love the Bush tax cuts. You never hear them put it that way, but undoing most of them would be unthinkable to most liberals.

In 2000 the tax brackets were 15, 28, 31, 36 and 39.6 percent. By 2003 they were 10, 15, 25, 28, 33 and 35 percent, although the parameters for the brackets had shifted. While the reduction to the top tax bracket gets the most attention, the cuts at the bottom were rather large.

It's a bit complicated when we try to compare them. In 2000 the first bracket ended at $43,850 for a married couple filing jointly. In 2003, that bracket ended at $17,072. What that means is that the smallest bracket did not actually see a one-third cut for most low-wage taxpayers (unless all of their income fit in that under-$17,072 bracket) but it was a larger proportion than the cut to the top bracket, which was a little more than one-tenth.

So when you hear a critic say that most of the Bush tax cuts went the rich, they are correct in terms of dollars saved. They are not correct in terms of percentages.

There's an old parable about splitting up a restaurant check in proportion to one's income, and how when the  check is reduced (metaphorically, a tax cut) it makes sense to reduce it proportionally, but the critics will sound off about how the low-payers are not getting as big a discount as high-payers in terms of dollars paid.

That parable is rather important. Please read it.

The left hates the reduction to the top tax bracket, but they just love the reductions to the lower brackets. The lefty suggestions in Washington right now do not even consider snipping those cut. People are used to paying them, and President Barack Obama campaigned on not raising taxes to the poor and middle class. The rates are the new normal, and it's politically unpopular to consider messing with them.

Which is kind of funny, since the left swoons over speeches from Elizabeth Warren and Obama that reiterated the Oliver Wendell Holmes, Jr. quotation that "Taxes are the price we pay for a civilized society." Yes they are, so shouldn't everyone in the society be responsible for paying them?

The standard defense is that half of Americans who don't pay federal income taxes still pay taxes through sales tax and other indirect payments. Sure, that's true, but would the people making that argument accept the same logic when applied to corporations that do not pay income taxes, but do pay property taxes, sales taxes and payroll taxes? I'll wager they would reject that idea.

This tendency of lumping tax increases on the rich, but targeting everyone else when it's time for a tax cut, has given us an unbalanced progressive tax system. With such a high percentage of our taxes being paid by the rich, wouldn't it be proper to show a little gratitude towards the people who pay so others don't have to?

The biggest problem with the Bush tax cuts was not that they reduced the money the government has to work with too much, it's that they occurred in a vacuum and were not coupled with major reductions in spending.

I don't buy the line that Republicans should make a deal with the Democrats to increase the top tax bracket to 39.6 percent in exchange for spending cuts. There are two major problems here.

The first, as Kevin "Angus" Grier has beat into my head, is that our current Congress can't bind future Congresses to stick to the deal and there's no reason to expect the pledge to reduce spending would be honored.

The second is that that wouldn't raise very much money. A report indicates that raising that top tax bracket to Clinton levels would provide the government with an additional $950 billion over the next decade. However, for the last four years the federal budget has added more than $1 trillion annually to the deficit. The math is all wrong.

That deal would just lead to higher taxes, and if history is any indicator, the additional tax dollars would not go towards paying off the deficit but instead would inspire new federal spending.


  1. People have forgotten the idea of a real tax cut.

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  2. I'm glad you brought up the issue of balance because I don't think people consider how fragile the system is. Dumping taxes on the rich has consequences and as the UK has found out, Art Laffer was right, some tax increases do lower revenues.

    The last nail in the coffin is that the rich tend to be in a position to control when they get paid. Giving people with the means to go elsewhere a good reason to do so. As California has also discovered, the rich tend to have very volatile earnings, making the governments ever increasing dependence on a small part of the population.