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Who really benefits from the Bush tax cuts?

The second presidential debate—which will focus on domestic issues, including the economy and the living standards of average Americans—is slated to darken TV screens across this sweet land of liberty at the end of the week. So it's a good time to take stock of one of the major bones of contention between President George W. Bush and challenger John F. Kerry. We speak, of course, of Bush's income tax cuts, which Kerry has consistently attacked as little more than a giveaway to the rich and powerful.

"George Bush has given more to those with the most, at the expense of the middle-class working families who are struggling to get ahead," Kerry pronounced in a recent, and typical, speech. In at least one sense, this statement is incontrovertibly true: Those at the top of the income pyramid get more money back from tax cuts. However, that's mostly because they pay more in taxes. In a recent publication, the Congressional Budget Office concluded that the households comprising the top 10 percent of income earners in 2001 shouldered 67.7 percent of income tax liabilities. So any cut in rates will reduce the burden of those paying the most.

But of course that's not what Kerry, and many of his supporters, mean. They've consistently suggested that the Bush tax cuts push platefuls of cake to well-connected millionaires while reserving only a few crumbs for the vast majority of Americans whose income places them far lower on the income scale.

Is that true? Using tax amounts due in the pre-Bush tax cut year of 2000 as a baseline, we ran some numbers based on households that made between $50,000 and $75,000 a year in total income. We chose those numbers for a couple of important reasons. First, more households—18.4 percent in 2001, according to Census figures—reported an income in that range than in any other. Second, that same spread is the most typical range for income tax returns filed. Using 2001 IRS stats, 13 percent of all returns filed reported an adjusted gross income level of between $50,000 and $75,000. In fact, that range accounted for 18 percent of all returns when there was any taxable income reported. For each scenario below, we calculate cumulative savings by subtracting the amounts due under Bush's cuts from the figure that would have been due if the 2000 rates had remained in place. That is, cumulative savings = (2000 tax x 3) - (2001 tax + 2002 tax + 2003 tax). Because the lower tax rates were phased in gradually, we've also noted the difference between amounts due in 2000 and 2003.

Consider first a married couple that brings in $75,000 a year in total income. That's a lot of money—enough to put a household in the fourth-highest income quintile (go here for the upper limits on each quintile). We assumed that they own a home and that their itemized deductions, including mortgage interest, property taxes, and charitable contributions, totals $13,500 (a typical amount). We ran the numbers for them as childless and with two kids. Here's what their federal income tax came to in each of the last four years.

Year

Childless Couple

Couple with Two Kids

2000 actual tax

$9,959.00

$7,391.00

2001 actual tax

$9,674.00

$6,879.00

2002 actual tax

$8,788.00

$5,968.00

2003 actual tax

$7,614.00

$4,699.00

Cumulative savings

$3,801

$4,627

Difference between 2000 and 2003 tax

$2,345

$2,692

In both the childless and two-child scenarios, the amount of taxes saved over the three years of Bush tax cuts is substantial. So is the difference between the 2000 and 2003 tax due.

Significant, if smaller, savings can be seen at a lower level of income, especially if there are children involved. Here are our calculations for a couple making $50,000 a year and taking the same $13,500 in itemized deductions.

Year

Childless Couple

Couple with Two Kids

2000 actual tax

$4,639.00

$2,799.00

2001 actual tax

$4,609.00

$2,539.00

2002 actual tax

$3,979.00

$1,879.00

2003 actual tax

$3,864.00

$949.00

Cumulative savings

$1,465

$3,030

Difference between 2000 and 2003 tax

$775

$1,850

And here are the figures for a $50,000 a year household that lives in an apartment and takes the standard federal deduction.

Year

Childless Couple

Couple with Two Kids

2000 actual tax

$5,561.00

$3,721.00

2001 actual tax

$5,494.00

$3,424.00

2002 actual tax

$4,826.00

$2,726.00

2003 actual tax

$4,464.00

$1,549.00

Cumulative savings

$1,899

$3,464

Difference between 2000 and 2003 tax

$1,097

$2,172

These calculations suggest that, contrary to John Kerry and other critics, the Bush income tax cuts have in fact put real money in the pockets of typical American families.

None of this should be taken as a brief for George W. Bush. One of us (Nick Gillespie) is on the record (in the November issue of Reason, on newsstands now!) as declaring that he will not vote for Bush; he has also consistently decried Bush's policies on trade, drug prohibition, gay marriage, public education, and the invasion of Iraq. One of us (Mike Snell) plans a principled vote for the guy who promises not just to cut taxes, but to abolish the income tax altogether.

But the fact remains that Bush's cuts have reduced the amount of income tax we all pay. Though Kerry will certainly suggest otherwise in Friday's debate, the trouble with Bush's budget policy isn't that he cut income taxes. It's that he hasn't cut spending. Indeed, perhaps the strongest case for electing Kerry may be that he will usher in an age of divided government that will restrain federal spending and the various problems that accompany it. That's what happened the last time a Democratic president squared off against a Republican Congress. At least in fiscal terms, the results were pretty good, with discretionary spending increasing only a (relatively!) measly 3.4 percent annually under Clinton. It's a shame that we won't hear Kerry making that sort of argument in the next debate. It's just the sort of thing that might get him a few more votes from limited-government advocates who are disappointed with Bush.

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