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Bush soaks the rich

Posted by Richard on December 21, 2007

The Democratic presidential candidates (Edwards especially) have been running around bashing the Bush tax cuts, complaining about "inequality," and promising to make the rich pay their "fair share." But according to The Wall Street Journal, the rich not only pay the vast majority of income taxes, they paid a larger percentage in 2005 than in 2000 (emphasis added):

Last week the Congressional Budget Office joined the IRS in releasing tax numbers for 2005, and part of the news is that the richest 1% paid about 39% of all income taxes that year. The richest 5% paid a tad less than 60%, and the richest 10% paid 70%. These tax shares are all up substantially since 1990, and even somewhat since 2000. Meanwhile, Americans with an income below the median — half of all households — paid a mere 3% of all income taxes in 2005. The richest 1.3 million tax-filers — those Americans with adjusted gross incomes of more than $365,000 in 2005 — paid more income tax than all of the 66 million American tax filers below the median in income. Ten times more.

It wasn't, as the left argues, because of "rising inequality." Between 2000 and 2005, the income share of the richest 1% barely budged, going from 20.8% to 21.2% (a 2% increase). Extrapolating out, that's just 0.8% in a decade. During the 90s, by comparison, the income share of the top 1% rose 7% (from 14% to 21%, a 50% increase). So "rising inequality" was far more in evidence during the Clinton years — when the left didn't seem to notice.  

Notably, however, the share of taxes paid by the top 1% has kept climbing this decade — to 39.4% in 2005, from 37.4% in 2000. The share paid by the top 5% has increased even more rapidly. In other words, despite the tax reductions of 2001 and 2003, the rich saw their share of taxes paid rise at a faster rate than their share of income. 

And contrary to the claims made by the left, the Bush tax cuts didn't increase the deficit, reduce revenue, or need to be "paid for." Lower tax rates (as usual) led to increased tax revenue: 

The amount of capital gains declared on tax forms has doubled since the tax rate was cut to 15% from 20% in 2003, which has also contributed to more Americans being "rich." Dividend income has also increased by at least 50% since that rate was cut to 15% from nearly 40% in 2003. So part of the income gains of the rich are simply a result of assets that have been converted into taxable income — in part because of lower tax rates.

That leads to my main crticism of the Bush tax cuts. I believe it was Milton Friedman who said that if you cut tax rates and revenue increases, it proves that you haven't cut tax rates enough.

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One Response to “Bush soaks the rich”

  1. T F Stern said

    “That leads to my main crticism of the Bush tax cuts. I believe it was Milton Friedman who said that if you cut tax rates and revenue increases, it proves that you haven’t cut tax rates enough.”

    While I agree with the statement I must also point to a system which will only permit so much; the Democratic controlled Senate and House are against any tax cuts; favoring instead, tax increases. Watch and see what will come after the 2008 elections; a brave new world may await us.

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