Tax Cuts for the Rich: 1999 vs 2007

Let's take a married household earning about $45,000, with three dependents, owns a home, and gives slightly more than average to charity (as Republicans are wont to do).

For tax year 2007 this household would pay $0 in federal income tax. In fact, not only would they pay $0, but they would get over $2400 from the federal government. This is not money being refunded to them - it's free money from the government.

Now, if this same household had filed using 1999's tax laws, they would have owed $950. That's a $3,300 swing in the wrong direction.

So, over the next year or so as the Bush tax cuts are debated, the phrases, "tax cuts for the rich" or "tax cuts for the wealthiest 1%" or any derivation thereof, are hereby banned.

The Achilles Heel of a Progressive Income Tax

According to the Treasury Department, by way of the IRS, the top 0.1% of US earners make 9.1% of the country's total income. However, they pay 17.4% of the total taxes. The top 1% earn 19% of the total income, but pay 36.9% of the total tax. In contrast, the bottom 50% earn 13.4% of the income and pay only 3.3% of the total tax.

To highlight the "fairness" of the US tax structure, let's compare a US household consisting of a married couple with two kids, making the average wage, with the same household in other countries. In the US, this family would pay 11.9% in taxes. In Iceland and Ireland this family would pay 11% and 8.1%, respectively. If you're Canadian, you pay 21.5%. Move to Japan and you pay 24.9%. England, Germany, and France? Try 27.1%, 35.7%, and 41.7%. So, according to this data, by the world's standards the US middle class is not overtaxed.

Last July, the NY Times ran a piece which showcases the fact that "tax revenues are increasingly dependent on the fortunes of the very rich." The Times also points out that "the top 10% of taxpayers- those with incomes above $100,000- provide about two thirds of income tax revenue."

When looked at in these terms, "tax cuts for the rich" doesn't have the same sting as a campaign slogan. If anything, the NY Times' data suggests the rich are shouldering too much of the nation's tax burden, making it extremely difficult to create accurate budgets. In effect, the US government is beholden to the success or failure of the stock market. Therefore, because of the progressive nature of the US income tax system, Congress is faced with the same budgeting difficulties that any other commission based household has.

May 20 Tax Cut Letter

Here is a link to a letter which appeared in the Deseret News recently. I will reprint it here as well:

This week, President Bush signed into law another tax cut — some $70 billion — that ensures that deficit spending will increase, simply because the conservative idea that tax cuts cause spending to dry up is wrong. The strongly anti-government Cato Institute recently reported that, since 1981, every $1 in tax cuts led to 15 cents of extra spending, whereas every $1 of tax hikes reduced spending by 15 cents. The data unequivocally demonstrate that conservatives have it backwards and that their ideas are nonsense.

Robert Hildebrand
Salt Lake City


I sent a reply today:

In his recent letter, Robert Hildebrand stated that according to the "strongly anti-government" Cato Institute, cutting taxes is a bad idea. I have to admit that this caught my attention and piqued my curiosity. So I looked up the Cato Institute and found this quote from their opinion piece at www.cato.org regarding President Bush's first tax cut in 2001:

"The way for taxpayers to protect themselves is to put strict rules on the government’s power to tax and spend. We should require the federal government to balance its budget so we never again run up deficits like those of the 1980s and 1990s. And we should reach that balance by slashing federal spending and closing certain federal departments. Also, we should cut taxes now, by more than the Bush administration proposes."

Mr. Hildebrand was right, we should have listened to the Cato Institute.