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The Detroit News, August 27, 2004
Bush Fails to Get Deserved Credit for Tax Cut Benefits
Despite reporting distortions, a congressional report shows the rich
pay proportionately more in taxes while all income earners do better.
By Donald L. Luskin
A report from the nonpartisan Congressional Budget Office has Democratic
presidential candidate John Kerry claiming it proves that “Over the last
four years, the burden of taxes has shifted from the wealthy to the middle
class.”
Those are politically motivated lies that distort the findings of the
report. Here’s the truth.
The report proves that what President Bush said about his tax cuts is true:
“Tax relief is for everyone who pays income taxes.”
It’s true for the rich, and it’s true for the not-so-rich. Across 109.4
million tax-paying households — from the wealthiest 1 percent with incomes
averaging over $1 million to the lowest-earning 20 percent of people with
incomes averaging $14,900 — the report shows that all income classes have
seen their income tax rates lowered thanks to Bush’s cuts in 2001, 2002 and
2003.
The CBO report shows how 2004 income tax rates have dropped for everyone
compared with tax laws in force in 2000.
The report also shows that Bush’s tax cuts have been “progressive” — that
is, they have shifted the share of the overall federal income tax burden
toward the wealthy and away from lower-income earners. Without the Bush tax
cuts, the highest-earning 20 percent of households this year would have paid
78.4 percent of all federal income taxes. Now, after the Bush tax cutes,
their share of the burden has risen to 82.1 percent. Every other group now
pays a smaller share of the total income tax burden.
Another part of the CBO report shows how the income tax burden has shifted
upward for the rich and downward for everyone else.
What a victory for compassionate conservatism. Everybody gets an income tax
cut, and when it’s all done the rich end up paying proportionately more.
The report also shows that Bush managed to craft a tax reduction package
that even benefits the lowest-earning taxpayers who already pay what amount
to negative income taxes. That’s right, thanks to various refundable tax
credits, before the Bush tax cuts the lowest-earning 20 percent of income
earners not only paid no income taxes — on average they received money from
the Internal Revenue Service. Now that’s compassionate.
But will Kerry or the media give Bush one ounce of credit for any of that?
No, the liberal establishment always has to find a way to demonize anything
that comes from the policies of Bush.
Virtually parroting the first paragraph of a Democratic congressional press
release, the Wall Street Journal story began: “President Bush’s three
tax-cut laws will reduce this year’s income taxes for the richest 1 percent
of taxpayers by an average of $78,460, more than 70 times the average
benefit for the middle 20 percent of taxpayers, congressional analysts
found.”
First, the Journal gives the false impression that the statistics cited in
the first paragraph are from the CBO report. They are not. They appear
nowhere in that report. Instead, they are from a separate analysis of the
CBO report by the Democratic members of the Joint Economic Committee of
Congress.
Second, the Journal’s version of the Democrats’ analysis inserts a critical
— and erroneous — word that was deliberately not used by the Democrats. The
Journal refers to income taxes — when the Democrats just refer to taxes.
It’s an important distinction, because the 2002 tax cuts allowed for greater
deductibility of capital expenses for corporations — a deliberate (and
successful) attempt to stimulate corporate capital investment after the
terrorist attacks of Sept. 11, 2001. The CBO attributes those corporate tax
cuts to individuals, based on the extent to which individuals receive
dividends and capital gains.
Naturally, the highest-income earning taxpayers will get the bulk of this —
even though all taxpayers enjoy the many benefits of a stronger economy as a
result of greater capital investment by corporations.
If that corporate tax cut and the CBO’s quirky methodology for attributing
it to individuals it is eliminated from the analysis, then the 70-1
advantage of the top 1 percent versus the middle 20 percent is almost cut in
half. Yes, the Democrats surely used data selectively to make their claims
as extreme as possible — that’s their partisan job. But the supposedly
objective Journal made the data seem even more extreme than the Democrats
did.
Third, the Journal eliminated a critical word from the Democrats’ press
release — “2004.” The corporate provisions of the 2002 tax cut expire after
2004, so the extreme numbers focused on by the Democrats settle down
considerably in 2005 and thereafter.
Robert Williams, the economist who is the chief author of the Congressional
Budget Office’s report, told me he was disappointed with the way his work
has been distorted.
You would think seasoned congressional staff members would know by now how
Washington works in an election year. But apparently even they have never
seen presidential candidates and the media as rabidly partisan as they are
right now.
About the Author Donald Luskin is chief investment officer of
Trend Macrolytics LLC, an independent economics and investment-research firm
in Menlo Park, Calif. |
