New at Reason

Tim Cavanaugh | October 6, 2004

Nick Gillespie and Mike Snell run the Bush tax cut numbers, and get some surprising results.

Comments

|10.6.04 @ 5:15PM|#

Looks like the actual BONE of contention is in the photo just adjacent to the tax story.

|10.6.04 @ 5:15PM|#

Ya'll are just now figuring this out? And with a third kid, I'm loving the new extensions. It just reminds me of how stupid most of your poll respondents were this month, how can people supposedly for free markets vote for Nader the Regulator in 2000? And almost no mentions of Sept. 11th? I'm going to have to find something other than Libertarian to identify with soon if your writers keep this crap up.

|10.6.04 @ 5:58PM|#

After the first round of tax cuts, I had enough "extra" money to buy health insurance.

[begin delusional moment]
Maybe some policy maker will discover some method to remedy health insurance woes within that example.
[end delusional moment]

:-)

|10.6.04 @ 6:12PM|#

out of curiosity, how does this compare to the people in the top 1%?

i've never argued that Bush's tax cuts helped only the wealthy - merely that the wealthy enjoyed a greater gain than the middle class. in terms of absolute dollars of course that's true, but I'd be curious to have the same analysis compared on those filing taxes on, say, $250k plus, and compare the percentage savings over the period for those int he 50-75k range to the percentage savings on the upper brackets.

My intuitive sense is that the percentage savings is grater for the upper levels, but I of course don't *know* that.

(I'll admit that I don't know if $250k is a useful baseline - no economist I)

|10.6.04 @ 6:12PM|#

Technical questions:

1) The article says that the annual rate of increase in domestic discretionary spending was 3.4% under Clinton. Is that adjusted for inflation?

2) If not, does anybody know the average annual inflation and population growth rates during the Clinton years? I wouldn't be shocked if it turned out that domestic discretionary spending tracked inflation and population growth during divided gov't.

3) Finally, does anybody know the pre-1994 and post-1994 figures for Clinton? Those would be most revealing.

Tim Higgins|10.6.04 @ 6:27PM|#

"It's a shame that we won't hear Kerry making that sort of argument [for divided government] 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."

That'd be quite a risky gambit for Democrats, wouldn't it? I wonder how many electoral votes belong to swing states with contested Congressional elections concurrent with the Presidential one? Doesn't a "Vote for divided government - Vote for Kerry" campaign mean "Vote for Kerry . . . and a Republican legislator?" Even as a conservative, I'd hate to see the combination of Kerry losing AND inadvertantly sweeping in a Republican supermajority in Congress.

|10.6.04 @ 7:16PM|#

Here's the official Kerry line on the situation taken from his website. Argue it.

Income Decrease: $1,462. Under President Clinton, family income increased $7,202 from 1992 to 2000. Under President Bush family income has declined $1,462 from 2000 to 2002. [Source: U.S. Census Bureau]

� Tuition Increase: $1,032. Nationally, four-year public college tuition and fees increased by an average of $1,032 since Bush took office, a 28 percent increase, the highest three-year increase on record. [Source: The College Board, Trends in College Pricing 2003-04 compared to 2000-01]

� Health Increase: $793. Health care costs have increased by an average of $793 since Bush took office, a stunning 49 percent increase. [Source: Kaiser Family Foundation, Employer Health Benefits Survey 2000 and 2003, www.kff.org]

� Gas Increase: $245. The average U.S. household has seen an increase of $245 annually in gasoline prices and an average household with children has seen an increase of $289 in gasoline prices since Bush came into office. [Source: Department of Energy, Energy Information Administration]

� State and Local Tax Increases. Since the beginning of the Bush administration 32 states have been forced to raise taxes and fees by a total of $16.2 billion. At the local level, county and city governments have been raising taxes as well. In 2002, property tax collections were rising more than 10 percent. [Source: Blueprint Magazine, �Bush�s Tax Shakedown,� June 30, 2003]

BUSH TAX: AT LEAST $3,532

|10.6.04 @ 7:29PM|#

Gadfly,

Bush was President during a recession; Clinton was President during a boom. That simple fact accounts for everything you listed above. So it's only a "Bush tax" if you're ignorant enough to believe the recession was Bush's fault.

|10.6.04 @ 7:59PM|#

I love, too, how "...states have been forced to raise taxes and fees by a total of $16.2 billion. At the local level, county and city governments have been raising taxes as well." Forced? Who forced them? And for what reason? The state, county and city governments should have gotten a clue and cut some programs.

But then again, I suppose the federal gov't should have done the same as well.

|10.7.04 @ 12:19PM|#

An un argued point is that there are a huge number of "S" corporations in the US. An "S" corporation income flows directly to the owner of the business. The tax cuts have made a big difference. You can have a 30,000,00 gross sales "S" corp - be making 300,000 a year and literally go out of business because you have no net cash flow. You get taxed on inventory etc...

|10.7.04 @ 12:20PM|#

Bush Tax? What? You mean Bush forced Californicate government to burn through a multi-billion dollar surplus and double spending in something like 4 years?

Shit, I thought it was that asshole Gumbi Davis and the Democrat controlled legislature.

Well, for starters I'm gonna kick his ass, got dam Texan..Best thing outta Texas is Interstate 10 anyway, by God...screw up my state....sunny beach, mumble, piss & moan.........

Pete Guither|10.7.04 @ 12:27PM|#

People keep talking about tax cuts. What tax cuts?

I like tax cuts, but all I've seen is tax loans (We'll give you some of your money back by taking out an even larger loan in your name.) Heck, anybody can do that.

I might as well run for President claiming that I'll cut taxes 50% while still delivering all the pork anyone wants. "OK guys, get on the cranks and start raising the deficit ceiling."

Kevin Carson|10.7.04 @ 12:45PM|#

Any analysis of relative tax burdens that ignores the Social Security payroll tax is misleading. This is especially true given that the SS surplus is used to disguise the extent of the budget deficit. And doubly true given Greenspan's advocacy of reducing the SS benefits that the increased payroll tax of the last twenty years was intended to fund. In practice, the payroll tax has been used to offset increased spending and tax cuts for the rich.

|10.7.04 @ 12:49PM|#

I've gone over this before, but I'll post it again: I think spending is a much more important issue than taxes.

Say that 2 candidates, let's call them Dumbass and Liar, offer their fiscal plans. Dumbass is going to buy a bunch of really expensive stuff that you don't want, and you'll pay for some of it now and most of it later. Liar is going to buy a bunch of really expensive stuff that you don't want and you'll pay for most of it now and a little bit of it later.

Now, some people look at Dumbass's plan and start swooning over the fact that more of the payments are deferred. They accuse Liar's fans of being enemies of economic liberty. "Look, folks, sure they're both coercing us into paying for this expensive stuff that doesn't do any good, but Dumbass is going to defer slightly more payments than Liar! Don't you believe in keeping what you earn....at least until the jackboots show up later and order you to pay the bill plus interest?"

Me, I'm much more interested in the total bill than in the payment plan. It's not like those deferred payments save me anything. If I take the money that I'm "saving" in the short term under Dumbass's plan and spend it on vacations and fun (after all, it is my money, I should be able to have fun with it) I'll just have to tighten the belt later on to pay the interest. The only way to stay ahead is if I invest that money (either in financial markets, business improvements, or career development to improve my salary). Now, you may be thinking "boo-fuckity-hoo, you'll have to be smart with your money, big deal!" My point is that if I was really saving money I'd actually have some surplus, some money that I could afford to have fun with and not fall behind in the long run.

So I look at the total price tag. Now here's the thing: Dumbass and Liar are both lying about the total price of their ideas. Nobody knows the exact price because it will have to go through Congress. Whichever one of those crooks takes office, we'd better make damn sure that he faces a bitterly opposed Congress. Otherwise the price tag will mushroom.

|10.7.04 @ 12:59PM|#

One major drawback to the 'S' corporation that t mentions is that the individual is taxed on his or her share of corporate profits regardless of whether or not the income was actually distributed.

At Rich's 250k baseline many of the tax advantages available to average taxpayers have disappeared. The benefit of itemized deductions is indexed and reduced, the deduction for personal exemptions fades away, the child credit and most other credits including child care credit, education credits, and the deductibility for losses on rental real estate are phased out. Alternative Minimum Tax sometimes kicks in, which makes a mockery of any and all tax deductions by penalizing the taxpayer for having too many.

The phase-out thresholds are based on a sliding scale according to income and kinds of deductions so getting specific in this short space is a dicey proposition, but the point remains that higher income people lose most of the deductions we are all familiar with. I have many clients that we would consider to be rich whose tax bite (state and federal combined) approaches half their income.

Although Kevin dissents, for this particular analysis social security taxes are irrelevant. Our entire point is that there has been significant tax relief for a broad cross section of American families, something that has been, to be charitable, misrepresented in the media and by the Kerry campaign.

Disclaimer: I've never met a tax cut I didn't like.

As a libertarian I'm in favor of anything that impedes the flow from your wallet to the Treasury Department. Even if the tax cut only saved you TWENTY bucks, that's enough to take the old lady to the movies and buy her some popcorn. And it's your money to start with, not theirs.

|10.7.04 @ 1:13PM|#

Thoureau, all your points are valid except you are thinking of the government the way you would think of your family or business economic affairs.

Every dime you give them now will be flushed down the toilet. Every dime you give them later will be flushed down a toilet. The best defense is to give them as little of your hard earned as possible. Now and later.

Sure, we'd all like to see spending reduced. Think that's going to happen? Not only no, but HELL NO.

So what is the point of giving them an extra grand or two this year on the off chance your kids might be better off in 20 years? I say buy your kids some clothes, take a vacation, open a savings account, or paint the house. Let somebody else buy some $300.00 toilet seats or $900.00 hammers.

|10.7.04 @ 1:23PM|#

Every dime you give them now will be flushed down the toilet. Every dime you give them later will be flushed down a toilet. The best defense is to give them as little of your hard earned as possible. Now and later.

twc, this falsely assumes that there are no other economic consequences of deficits and debts -- akin to the classic cheney line, "deficits don't matter", which will be quoted by economic historians for decades to come.

in fact there are many other effects, from debt service costs to rising interest rates to currency devaluation. some of these can be very volatile and extremely damaging -- especially to a wildly indebted public.

there is no argument i've yet seen that makes good sense out of prolonged periods of fiscal irresponsibility.

|10.7.04 @ 1:42PM|#

The whole 'tax cut while raising spending' issue and the prolonged period of fiscal irresponsibility. Raising taxes = bad for the economy in the long run. Prolonged deficit spending (fiscal irresponsibility) = bad for the economy in the long run. So our choices are vote for the guy who'll cut taxes while spending irresponsibly (we'll even ignore the increased revenue that comes from tax cuts for simplicity) vs. the guy who'll raise taxes and increase spending (and we'll even assume he'll do so in such a way so as to not produce long term deficits). So we've one whose 50% bad (deficits) vs the other whose 50% bad (raising taxes). Toss up? I'd say not. The guy cutting taxes is acknowledging that taxes should be minimized and your money doesn't belong to everybody else; the guy raising them is saying your money is a means to an ends and we'll continue taking as much of as we deem necessary. The first is a long term healthy mindset for government, the later a poisonous one. Now the tax cutter this year is entirely too much of a spender and I don't think his base is going to put enough pressure on him to scale back, so I ain't voting for him. But I have other choices. If it comes down to the tax cutter/big spender vs. the tax raiser/big spender and that's my only options and I can't not vote and there's no other important issues deciding it, the tax cutter/big spender gets my vote every time.
-Karl

|10.7.04 @ 1:50PM|#

So we're pretending that the income tax revisions are the entirety of "the Bush tax cut?" Dividend income? Heir Tax? Write off for corporate SUVs?

While we're pretending, can I be Spiderman?

|10.7.04 @ 2:13PM|#

joe,

I always imagined you as more of a DC comics fan.

Take that any way you want.

|10.7.04 @ 2:51PM|#

Gaius

"there is no argument i've yet seen that makes good sense out of prolonged periods of fiscal irresponsibility."

I don't disagree. But since we can't stop that fiscal irresponsibility, the next best thing is to prevent them from looting your own pocket book as much as is possible.

In the meantime, by all means, we should try to bring about as much change in the statist quo, economically speaking, as we possibly can.

In Ca, there has been a glimmer with the recall of Davis and the policies of Arnie. He ain't great but it's a step in the right direction.

|10.7.04 @ 3:05PM|#

looting your own pocket book as much as is possible

that isn't all wrong, twc, i agree -- chances are that the politically palatable solution to our debtor society will be the destruction of the dollar, allowing us to pay back today's loans in valueless dollars later.

however, that destruction will not be painless -- and it will be more painful the further into debt we go. no choice, perhaps -- but that's the same as saying inevitable crisis and great pain. just so long as we all know it. :)

|10.7.04 @ 3:08PM|#

I believe it was Murray Rothbard who advocated the repudiation of our national debt. His theory being that other nations would be loathe to lend us so much treasure again. But then on the other hand, you have Argentina...

|10.7.04 @ 3:19PM|#

I like tax cuts, but all I've seen is tax loans (We'll give you some of your money back by taking out an even larger loan in your name.) Heck, anybody can do that.

You're correct that the tax cuts are effectively smaller because of the need to eventually pay back the loans. However, since it is not difficult to find investments that yield rates of return in excess of what the government is paying in interest on its loans, I still win in the long run, even if the government is later forced to raise taxes to pay for the debt.

|10.7.04 @ 3:32PM|#

Spidey, we're not pretending anything here.

The varied comments on this thread have been interesting and diverse but the central theme I mentioned earlier is that "Our entire point is that there has been significant tax relief for a broad cross section of American families, something that has been, to be charitable, misrepresented in the media and by the Kerry campaign." That's an important point.

|10.7.04 @ 3:50PM|#

Gaius, although somebody will probably tell me I'm nuts, our real problem is that social security is obligated for more than the entire wealth of the country.

It will be interesting to see what happens when the baby boomers start retiring and the Gen Xers start forking over those huge benefits to a generation that thinks savings and investment means getting a low interest credit card.

|10.7.04 @ 3:52PM|#

"... 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."

What are the chances Dubya will have the balls and/or intelligence to say this during the debate?

How many public school educated Americans know the difference between a flat tax and a progressive tax?

|10.7.04 @ 3:56PM|#

I believe it was Murray Rothbard who advocated the repudiation of our national debt.

Fascinating idea. Not sure if I like it, though. I've supported repudiating the public debt of undemocratic third world regimes on the grounds that Joe Schmoe third world guy shouldn't be held accountable for the decisions of his dictator.

However, the US has a representative government. That doesn't exactly make it right for you or me to be taxed for programs that others support. Still, we can't deny that much of the public is at least implicitly supporting the reckless spending, and so the moral argument for relieving the public of that burden is at least weaker.

There's also a practical issue: Repudiation of public debt would mean that future borrowing would only be possible if the gov't offered bonds with higher returns. While that might restrain borrowing, it would also aggravate the consequences of future binges. Higher returns always correlate with higher risk, which means that the good is really good and the bad is really bad. I don't know that we want to go down that road.

Personally, I favor a structural change similar to a balanced budget amendment: Any sort of bond issue, as well as tax increases and new taxes, should require two-third support in both the House and Senate. I know some people would support super-majorities for ANY spending, but we've seen in CA that super-majorities for state budgets don't automatically lead to less spending. Use a super-majority to set the overall size of the budget (via taxes as well as bond authorization) and then iron out the details via the normal process.

|10.7.04 @ 4:08PM|#

"Every dime you give them now will be flushed down the toilet."

We'd be better off if they just flushed it. The money you give them is actively used against you to make your life harder, and to make it more difficult to get more money in the future.

|10.7.04 @ 4:39PM|#

Rothbard's argument was to the effect that since people/institutions who buy government bonds are buying a slice of future tax revenues, they are teaming up with governement to fleece the taxpayer; so they had it a-comin'.

I'm pretty sure I disagree with that logic.

I used to be a regular chicken-little on the Social Security question. But if you think about the economics, average retirement ages must, and will, be raised. Either they will be raised by reform of the system, or market forces will bring about the same result. Social Security recipients will want goods and services in their retirement. Obviously those things can't be stored up in a vault somewhere. If there are massive demands on goods and services, but a shrinking supply (due to people leaving the workforce), prices will rise. People will be "priced out" of retirement, thus raising the average retirement age.

I confess I'm cribbing a bit from an excellent article in the Journal of Investing on the subject. Everyone should check it out. Published in the Summer 2004 edition, and written by Robert Arnott and Anne Casscells.

|10.7.04 @ 5:17PM|#

If we are looking at the question of "who benefits from Bush's tax cuts," then it is necessary to 1) Look at the impact of his entire tax package, and 2) Look at the entire federal tax burden born by families, including the payroll tax. Any analysis that fails to do either of these is meaningless for the purposes of answering that question.

|10.7.04 @ 7:45PM|#

Mark,
You have summarized a bunch of guys too in touch with their feminine sides. They're multi-tasking.
The question here is, "Does the Bush plan cut taxes for median Americans?"
Answer: Yes.
Can Bush use that as a club on Kerry?
We should hope so.

|10.7.04 @ 8:10PM|#

Ruthless, I think it is interesting that the Bush campaign, like most Republican endeavors, has failed to correct the misinformation about the tax cuts. They just don't seem to be able to do that. It's like the classic Louis Anderson fat joke, "Do you think he knows (how fat he is)?"

Do the Repubs even know how bad the tax cuts get played in the press? Can't they stand up and say, look dorks, blah blah blah and they saved $4,632.04 in taxes since Clinton was president?

Will Bush use this as a club on Kerry (as you hope). Five Bucks says "Nope". Maybe GWB really is a dumb as people give him credit for being.

|10.7.04 @ 11:02PM|#

I have a technical question on this example. It would seem that this example was not done with CPI-corrected numbers, unless that was done but avoided in the article to stop the eye glazing that will occur if you read the rest of this post. That is, $75,000 in year 2000 dollars is equivalent to $80,175 in year 2003 dollars, and $75,000 in year 2003 dollars is equivalent to $70,200 in year 200 dollars. Therefore, given a progressive tax rate structure, like we had in both of those years, we would expect the wealthier year 2000 type to have paid more in taxes, even if the tax system didn't change. In fact, since brackets are inflation adjusted, that would be represented by a transfer of about $5000 from the 28% bracket to the 15% marginal bracket. Granted that is only $650, so the total amount is still positive, but less so than the article's low to mid $2,000s.

|10.8.04 @ 8:51AM|#

TWC, Mark, and others,
If pollsters asked, "Under a flat tax, the rich would pay more. True or False?"

What would you guess would be the percentages?

|10.8.04 @ 11:08AM|#

Allow me to amend the question slightly:
"Under a flat tax, the rich would pay more than the poor. True or False?"

|10.8.04 @ 11:44AM|#

Uh huh, when people make a statement about their values and beliefs, push your glasses up your nose, sigh, and walk them through the equation again in a condescending voice.

Gee, I can't understand why your party doesn't have any seats in Congress.

|10.8.04 @ 1:11PM|#

Ruthless--percentages of what? I can't tell what you're asking.

|10.8.04 @ 2:48PM|#

Mark,
What percent of respondents would think that because it's a "flat" tax, the rich would pay the same as the poor.
Instead, WE KNOW the rich would pay a flat RATE, meaning they would pay more than the poor.
Inumerates--a large percent of voters--would probably be surprised once again to learn we have "progressive" rates.

Work with me here, Mark.

|10.9.04 @ 2:26AM|#

I don't know what percentage of the population correctly understands what is meant by a flat tax, and I won't pretend otherwise. I have had conversations with some of my students over the years on the subject of flat tax proposals, and all of them have correctly understood a flat tax as a system where the rich and poor play the same tax rate (with the qualification that many flat tax proposals do provide for some degree of exemption of income from taxation).

Of course there are other issues as well, like the way that interest and dividend income are treated--some flat tax proposals that I recall exempted these from taxation.

And if you asked a question like "under a flat tax, would the rich pay more than the poor?" then the vague wording of the question--"paying more" can be interpreted in more than one way--would promote some degree of confusion.