Tuesday, January 22, 2008

Bush Tax Cuts Favor Wealthy?

NOT IN ANY WAY YOU LOOK AT IT - according to a report by the National Center for Policy Analysis, a non-profit, nonpartisan public policy research organization based in Dallas.

DALLAS (January 21, 2008) – As Congress debates whether to renew tax cuts enacted early in the George W. Bush presidency, as well as various economic stimulus plans, critics often label the measures as "tax cuts for the rich." Yet a new report from the National Center for Policy Analysis (NCPA) says the Bush tax cuts made the tax code more progressive, no matter how progressivity is measured. In fact, the report concludes that every major tax change (Republican or Democrat) over the past two decades has increased the share of taxes paid by the wealthiest Americans.

"It is politically popular to say that tax cuts benefit the wealthy," said Michael D. Stroup, a Stephen F. Austin University economist who authored the NCPA report. "The accusation does not match the reality."

The progressivity of the tax system can be measured in four ways:
(1) the share of taxes paid by different income groups,
(2) the share of income paid in taxes,
(3) the change in taxes relative to the change in income over time,
and (4) a comparison of inequality of income to the inequality of taxes over time.

Looking at the first three measures, the report found that:

The top 1 percent of income earners pay more than one in every three dollars the IRS collects in taxes. From 1986 to 2004, the total share of the income tax burden paid by the top 1 percent of earners grew from 25.8 percent to 36.9 percent, while the total share of the tax burden paid by the bottom half of earners fell from 6.5 percent to only 3.3 percent.

During the same period, the percentage of income the top 1 percent of tax filers paid in federal income taxes rose from 18.3 percent to 19.6 percent. By contrast, the percentage of income the bottom fifth of tax filers paid in federal income taxes dropped from 0.4 percent to zero.

The income share of the top 1 percent rose 7.7 percentage points, from 11.3 percent to 19 percent, while their income tax burden rose even more, by 11 percentage points, from 26 percent to 37 percent.

The final measure compares the inequality of income to the inequality of taxes paid over time among all income groups. This measure is the "progressivity index," and is a numerical representation between 0 and 1. The closer the index value is to 1, the more progressive the tax system. For example:

From 1990 to 2000, the progressivity index increased from 0.476 to 0.617, during a period where marginal tax rates increased but capital gains tax rates fell.
From 2001 to 2004, under George W. Bush's tax reforms, the tax progressivity index continued to rise from 0.608 to 0.664.

"Its important when discussing tax reforms to consider how the system reacts, because of the great discretion high earners have in how they earn income and therefore pay taxes," said Stroup. "Bush's reforms have helped diminish the income gap between rich and poor, rather than make it worse."


And, in an argument virtually every liberal REFUSES to understand - to make tax cuts at all meaningful in terms of generating expenditure or investment you HAVE to cut taxes where tax rates are the highest and that's consistently the top quartile of wage earners in the country.

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