The Bush Tax Cuts — Who Benefited

I have been debating this with friends, family, and fellow bloggers. I have seen study after study that shows the tax cuts implemented in 2001 set us on a path of record deficits. The non-partisan Tax Policy Center has worked up the numbers.  

Distribution of the 2001 – 2008 Tax Cuts 
Congress has cut taxes every year since 2001, most importantly with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA).

The 2001–2006 tax cuts reduced most individual tax rates including those on capital gains and dividends; expanded the child tax credit; increased incentives to save; phased out the limitations on itemized deductions and personal exemptions for high-income taxpayers; and phased out the estate tax. Virtually all of the cuts end by 2011 when EGTRRA and JGTRRA sunset.  Source: Major Enacted Tax Legislation, 1940-2009 

The revenue cost of the tax cuts totals approximately $2.2 trillion over the 2001–2010 period. Annual costs will rise if Congress extends the tax cuts beyond 2010 or continues AMT relief after 2009.  Source:  The Distribution of the 2001-2006 Tax Cuts: Updated Projections, July 2008 

The tax cuts have disproportionately benefited high-income taxpayers. In 2010, the tax cuts will raise after-tax income by 0.7 percent for the lowest quintile, by 2.5 percent for the middle quintile, and by 4.0 percent for the top quintile. 


Nearly two-thirds of the tax cuts will go to the top quintile of taxpayers in 2010 and only 1 percent will go to the lowest quintile. 

Over the long-term, tax cuts must be financed through spending cuts, other tax increases, or a combination of the two. Who bears the cost of that financing will determine the ultimate distribution of the 2001-2008 tax cuts. The more progressive the method of finance, the less regressive the distribution of the tax cuts will be.

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8 responses to “The Bush Tax Cuts — Who Benefited

  1. only 1 percent will go to the lowest quintile.

    How do you cut taxes for people who pay no taxes?

  2. That is actually a misconception that is put out there by republicans and can be easily rebuffed thanks to stats provided by IRS and nonpartisan groups evaluating the data.

    I have an article that with the help of figures provided by the IRS does a great job explaining it. Please read below:

    Focusing on the statistical middle class — the middle 20 percent of households, as ranked by income — underlines this point. Households in this group made $35,400 to $52,100 in 2006, the last year for which the Congressional Budget Office has released data. That would describe a household with one full-time worker earning about $17 to $25 an hour. Such hourly pay is typical for firefighters, preschool teachers, computer support specialists, farmers, members of the clergy, mail carriers, secretaries and truck drivers, according to the Bureau of Labor Statistics.

    Taking into account both taxes and tax credits, the average household in this group paid a total income tax rate of just 3 percent. A good number of people, in fact, paid no net income taxes. They are among the alleged free riders.

    But the picture starts to change when you look not just at income taxes but at all taxes. This average household would have paid 0.8 percent of its income in corporate taxes (through the stocks it owned), 0.9 percent in gas and other federal excise taxes, and 9.5 percent in payroll taxes. Add these up, and the family’s total federal tax rate was 14.2 percent.

    I realize that it’s possible to argue that payroll taxes should be excluded from the discussion because they pay for benefits — Social Security and Medicare — that people receive on the back end. But that argument doesn’t seem very persuasive.

    Why? People do not receive benefits equal to the payroll taxes they paid. Those who die at age 70 will receive much less in Social Security and Medicare than they paid in taxes. Those who die at 95 will probably get much more.

    The different kinds of federal taxes are really just accounting categories. At the end of the day, the government has to cover the cost of all its operations with revenue from all its taxes. We can’t wish our deficit away by saying that it’s mostly a Medicare and Social Security deficit.

    If anything, the government numbers I’m using here exaggerate how much of the tax burden falls on the wealthy. These numbers fail to account for the income that is hidden from tax collectors — a practice, research shows, that is more common among affluent families. “Because higher-income people are understating their income,” Joel Slemrod, a tax scholar at the University of Michigan, says, “We’ve been overstating their average tax rates.”

    State and local taxes, meanwhile, may actually be regressive. That is, middle-class and poor families may face higher tax rates than the wealthy. As Kim Rueben of the Tax Policy Center notes, state and local income taxes and property taxes are less progressive than federal taxes, while sales taxes end up being regressive. The typical family pays a lot of state and local taxes, too — almost half as much as in federal taxes. http://www.nytimes.com/2010/04/14/business/economy/14leonhardt.html

  3. https://thebluestates.wordpress.com/2011/06/08/the-bush-tax-cuts-who-benefited/

    Your article is beginning to make my point. In it, the auther goes on to describe the fact that out of this MIDDLE class of people, there are those who don’t pay any Federal Taxes. The amount of folks who don’t pay into the Federal coffers is only going to go UP as the income brackets go DOWN.

    But let’s use those numbers just for a sec.

    Suppose Mike is rich and pays 22% in taxes. Mark is, not even poor, a middle class worker and pays 3% in taxes.

    Who sees a bigger tax cut if we reduce Mike’s burden from 22 to 18 and Marks from 3 to 2?

    I realize that it’s possible to argue that payroll taxes should be excluded from the discussion because

    In our case it’s because we are ONLY talking about Federal income taxes.

    But that argument doesn’t seem very persuasive.

    On a side note: I am willing to reduce or cut ALL social security payments as well as Medicare and Medicaid as well. But that’s ‘prolly another post 😉

    These numbers fail to account for the income that is hidden from tax collectors — a practice, research shows, that is more common among affluent families. “Because higher-income people are understating their income,” Joel Slemrod, a tax scholar at the University of Michigan

    Which, by the way, may be a reason these people are rich and others are poor. People who understand credit, debt, compound interest and pure simple discipline tend to be more wealthy.

    sales taxes end up being regressive.

    The author has left the ball-park, at least as far as it being relevant to our conversation, but he’s right; sales tax is much harder on the poor folks. Which is why the taxes on beer and cigarettes is simply brutal. But hey, that’s not a small government idea, that’s a progressive liberal concept.

    The short of it is this.

    Someone being taxed at 30% and someone being taxed at 15% BOTH see the same tax savings when you adjust their numbers to 20% and 10%. Yes, the rich guy saw a bigger savings in terms of points, but the ratio is the same.


    • Suppose Mike is rich and pays 22% in taxes. Mark is, not even poor, a middle class worker and pays 3% in taxes. Who sees a bigger tax cut if we reduce Mike’s burden from 22 to 18 and Marks from 3 to 2?

      I wrote this reply to another comment and I think it is appropriate for this as well——-The fact is, it is important to include these numbers because the top 2% normally do not get the bulk of their income from a salary like the middle/lower classes do, which gives them the ability to skirt around our tax code and use those lovely loop holes we have or through off-shore activities, which puts a large percentage out of the reach of our government.

      So taking that into consideration, the top earners end up paying less because their earning, the majority of it, does not come from a bi-weekly/monthly salary, they come from dividend payments, off-shore activities, so I will have to disagree with you on that point.

      On a side note: I am willing to reduce or cut ALL social security payments as well as Medicare and Medicaid as well. But that’s ‘prolly another post

      You are so right there. I could write pages on this subject, but don’t want to waste your time..LOL.

      Which, by the way, may be a reason these people are rich and others are poor. People who understand credit, debt, compound interest and pure simple discipline tend to be more wealthy.

      I strongly disagree with you there. These people a portion of them who did not inherit, etc, have the money to hire top notch accountants to sidestep these loop holes, and I will again reference my first response, most of their money are made from dividend payments and not a regular salary like middle/lower income earners and from off-shore earnings which are out of reach from our government. Here is the current tax rate for dividend-based earnings:

      The tax rate on qualified dividends is 0% or 15% (depending on the individual’s income tax rate). If the individual has a regular income tax rate of 25% or higher, then the qualified dividend tax rate is 15%. If the individual’s income tax rate is less than 25%, then qualified dividends are taxed at the zero percent rate.

      Just one more thing. Lets not forget what our tax dollars do provide for: Police, firefighters, roads, armed forces (which at the moment I believe we are spending too much on), public schools, money for college–Pell Grants, etc, which allows a lot of the lower class individuals to move into the middle class.

      Nice comment; a lot of great points. Also, now subscribing to your site; really great writer (better not tell your fellow conservatives a liberal said that…LOL)

      • The fact is, it is important to include these numbers because the top 2% normally do not get the bulk of their income from a salary like the middle/lower classes do, which gives them the ability to skirt around our tax code and use those lovely loop holes we have or through off-shore activities, which puts a large percentage out of the reach of our government.

        It isn’t important where they get their income or what the rate is. That fact is that you are comparing taxation of two groups of people. One is a higher rate and one is a lower rate, in some cases, a negative one. My point is the same: Though Mark reduced his taxes by 4 points and Mike by only 1, it is indeed Mike who saw the biggest benefit.

        our tax dollars do provide for: Police, firefighters, roads, armed forces (which at the moment I believe we are spending too much on), public schools, money for college–Pell Grants, etc

        Police, firefighters, schools are locally funded. Roads are funded through gas taxes. The military I agree with you on both points; we pay for it and it should be reduced.

        our tax dollars do provide for: Police, firefighters, roads, armed forces (which at the moment I believe we are spending too much on), public schools, money for college–Pell Grants, etc

        Thanks.

        • It isn’t important where they get their income or what the rate is. That fact is that you are comparing taxation of two groups of people. One is a higher rate and one is a lower rate, in some cases, a negative one. My point is the same: Though Mark reduced his taxes by 4 points and Mike by only 1, it is indeed Mike who saw the biggest benefit.

          The problem with this theory is that 95% or so of us pay 100% taxes on our salaries, whereas the top 5% or so pay taxes on a substantially smaller portion of their income. That is inequality no matter how you look at it.

          Police, firefighters, schools are locally funded. Roads are funded through gas taxes. The military I agree with you on both points; we pay for it and it should be reduced.

          Yes they are funded locally by local taxes but also federal funding, also by taxes. States get millions of dollars from our federal government every year for things like disaster relief, local dams, water works, etc, etc, but I will use education as an example of how our local communities are also funded by our federal government:

          The South Carolina Department of Education has been awarded a $5.7 million federal grant to help create additional high quality charter schools in the Palmetto State. The grant is one of 12 totaling $136 million for state education agencies in Arkansas, California, Colorado, the District of Columbia, Georgia, Indiana, Michigan, Missouri, New Hampshire, Rhode Island and Texas in addition to South Carolina. The largest award – $51,769,620 – went to California, while New Hampshire’s $1,330,981 was the smallest.

          This is just one example. There are many others. Local government/states do not support themselves alone with local taxes. Their budgets are highly subsidized by federal money, and that federal money goes to things like…again…education/schools, hiring of police officers/firefighters, new fire engines, etc. I could go on and on but I feel I have made my point.

          One other quick note, on funding for roads, this is from the fiscal year 2000 — In 2000, States spent about $89.8 billion for highways, including Federal-aid. The largest single component of State spending is for capital improvements to existing highway ($89.8 billion or 10.4%).

  4. Pingback: GOP wants to end middle class tax break. - US Message Board - Political Discussion Forum

  5. Pingback: Romney pays 14% tax on $21.7m income, what do you pay? - Page 7 - Pelican Parts Technical BBS

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