Jewish World Review August 20, 2004 / 3 Elul, 5764

Robert Robb

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Bush's burdening the Middle Class


http://www.jewishworldreview.com | John Kerry claims that a recent Congressional Budget Office report proves that the tax "burden" on the middle-class has gone up as a result of the Bush tax cuts.


It's hard to know where to begin to explain why this claim is false.


In the first place, the CBO relied on 2001 income data. The Bush tax cuts weren't fully implemented until 2003. So, the study is based upon income and tax projections, not actual results.


Moreover, the report assumes no changes in behavior as a result of income tax changes. That's known not to be the case. For example, capital gains tax collections tend to go up following a rate reduction, as people are more willing to realize them.


But even accepting the CBO's projections and assumptions, it does not say what Kerry says it says.


The Bush tax cuts reduced the "burden" for everyone who pays income taxes. In fact, larger percentage reductions occurred in the lower income tax brackets.


For middle-class families with children, the Bush tax cuts were actually quite substantial.


Kerry used to understand this. In the primaries, he sharply criticized Richard Gephardt and Howard Dean for proposing to repeal all of Bush's tax cuts. That would result in a middle-class tax increase in excess of $1,000, he said.


So, how did such a valuable tax decrease, worth defending in a Democratic primary, suddenly become an increased tax "burden"?


According to the CBO report, the percentage of overall federal taxes paid by the wealthy will go down over time and the percentage paid by middle-class and lower-income Americans will go up.


And so, according to Kerry logic, the "burden" on the middle-class is going up, even though its taxes are going down.


Now, to the extent behavior does not change and the Bush tax cuts do result in lower federal income tax receipts, they are partially responsible for this shift in burden. Reduced income tax receipts increase the relative share other taxes, such as payroll taxes that do fall more lightly on the wealthy, constitute of overall federal revenue.


But the Bush tax cuts, even under a static analysis, are a minor contributor to this shift in burden.


The CBO study assumes steady growth in real income, which pushes people into higher tax brackets. This phenomenon doesn't affect the rich, since they already pay at the highest rate.



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The same income growth will subject a growing number of middle-class taxpayers to the higher alternative minimum tax. Again, this phenomenon doesn't affect the rich because they are already subject to the AMT.


The most interesting finding of the CBO report, carefully read, is that this shift in burden would occur even if the Bush tax cuts hadn't been enacted. In fact, it would have been worse.


The last year the Bush rate cuts are in effect before being sunseted is 2010. According to the CBO report, in that year the percentage of federal taxes paid by the top 20 percent of income earners will actually be higher than it would have been if the Bush tax cuts had not been enacted.


In other words, the Bush middle-class and lower middle-class tax cuts do more to offset this burden shift than the tax cuts to the wealthy increase it.


That also means that Kerry's remedy, repealing the Bush tax cuts for those making over $200,000, won't prevent this burden shift.


The only way to prevent or substantially ameliorate it is to either index the brackets for real income growth or continue to reduce marginal tax rates.


Which is what the Bush campaign should challenge Kerry to support. But the Bush campaign isn't in the challenging mood on this front.


In response to Kerry's salvo on the CBO report, it did point out that all income taxpayers got a reduction. But the president and his campaign have proved unwilling to take on directly the question of higher-income tax breaks.


That's unfortunate. Marginal rates at the higher brackets are still too punitive. It is morally wrong and economically counterproductive for those families making over $175,000 a year to have the federal government confiscate a third of every additional dollar they make.


Kerry, and even more sharply John Edwards, are hostile to private sector investment. Their tax policies would shrink the pool of private investment capital and reduce the incentives to put it to work.


That's a very important economic issue. But thus far, it's a debate the Bush administration and campaign have, regrettably, tried to avoid.



JWR contributor Robert Robb is a columnist for The Arizona Republic. Comment by clicking here.

Up

08/13/04: For prez to win, he must change his campaigning style
08/03/04: Missing in Beantown was a sense of the art of the possible
07/26/04: Kerry inflated agenda reveals he's failed to truly make the transition from legislator to presidential candidate
07/12/04: Edwards punctuates Kerry fantasies
07/06/04: Kerry ups the ante in bid for Latino vote
06/30/04: High Court gave administration limits
06/25/04: Parallel (political) universes
06/21/04: Al-Qaida-Iraq interaction strengthens case for war
06/02/04: Gas whiners don't believe in or trust markets
05/10/04: Border reforms fail on black-market issue
05/07/04: It wasn't Bush's recession nor Bush's recovery
04/28/04: Arizona to become test market on immigration as a political issue
04/23/04: Accusations that the Bush administration has been shredding civil liberties are hyperbolic
04/16/04: Learning the limits
04/14/04: Aug. 6 memo is not even a water pistol, much less a smoking gun
04/11/04: Once 9/11 Commission's political theater ends, we must debate real security issues
04/09/04: Fact checking Kerry's federal budget plans
04/08/04: Should the transfer of sovereignty in Iraq be delayed beyond the current deadline?
04/02/04: Kerry's tax epiphany makes some cents
03/31/04: What could have prevented 9/11
03/26/04: Knock off the high-stakes blame game
03/23/04: McCain a ‘straight talker’? Who is he kidding?
03/17/04: Bin Laden makes distinctions?
03/12/04: In the dangerous neighborhoods, cause for hope, if not yet optimism
03/01/04: Greenspan view scary, but Dems in denial

02/27/04: How not to achieve a mandate


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