Jewish World Review August 20, 2004 / 3 Elul, 5764
Bush's burdening the Middle Class
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
For middle-class families with children, the Bush tax cuts were actually
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,
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.
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
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
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
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.
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