Friday, May 12, 2006

I Know This Is Old News, But Some People Still Don't Get It

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1 comment:

Anonymous said...

a little perspective, courtesy of Matt Yglesias

Our tax code features brackets. You pay x% of your income up to A dollars, y% on income between A dollars and B dollars, z% on income between B dollars and C dollars, etc. If you cut the rate on the lowest bracket, then people making less than the first threshold will derive some benefit, and people making more than the first threshold will derive somewhat more additional post-tax income. If you cut the rate on the next-lowest bracket, people making less than the first cut-off get nothing. People making more than the first, but less than the second, get some. And people making more than the second get even more. Lather, rinse, repeat for further brackets.

Given that Bush's tax cuts involved, among other reductions, reductions in the top rate it couldn't possibly avoid disbursing more cash to high-income individuals than to low income ones.

The fact that high-income people still pay a very high share of overall income taxes reflects the fact that pre-tax income inequality is growing. The pre-Bush tax code curbed that inequality somewhat. The post-Bush tax code does less to curb that inequality. This is a non-progressive tax cut.

To have a progressive tax cut, you need to do two things. First, you need to cut a tax that poor people pay -- FICA, for example. That will cut taxes on the poor. But it will also cut taxes on the rich by somewhat more. So the second step would have to be finding a tax that rich people pay but poor people don't pay, and raise it. Bush hasn't raised any taxes on rich people. He hasn't made the tax code more progressive.

And after all, why would he? Conservatives have never maintained that the tax code should be more progressive. Conservatives have never maintained that the tax code should curb income inequality. Indeed, to the best of my knowledge, conservative don't think the government should curb inequality at all. Are we supposed to believe Bush enacted a progressive, inequality-curbing tax initiative just to stick it to liberals? To show us up, teach us a lesson?

To further confuse the issue, the Joint Economic Committee study that allegedly proves "Bush's tax cuts make the tax system more progressive" doesn't even purport to show that. Rather, it (misleadingly) claims that his tax cuts made the personal income tax more progressive. Bush's tax policies have also reduced the personal income tax's share of the overall tax burden in favor of the regressive FICA. He's also sharply reduced the estate tax, which was highly progressive, and various progressive taxes on capital income.

It's a little disappointing that the Republican Party thinks that misleading people is a good use of time for the people working at the JEC and the Council of Economic Advisors when they could be spending time developing policies or trying to make the population better informed.

3:16 PM

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