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  • The Truth About the 2001-2003 Tax Cuts

    In the battle over the extension of the 2001/2003 tax cuts, a lot of myths about the tax cuts are being perpetuated. One of the common myths is that the Bush tax cuts disproportionately favored the wealthy, shifted the burden of taxes from the rich to the middle class, and made our tax system less progressive than most wealthy nations.

    First, although there was a slight shift of burden to the middle class immediately after the 2001 tax cuts were passed, as the higher earners (and businesses) grew their savings, investments, and wage funds, their share of the tax burden rose. By 2007, the highest earners were paying a significantly larger share than they had previously, and today the tax burden of top 1 percent exceeds that of bottom 95 percent.

    Does that sound unusually progressive? Well, it is. The U.S. federal tax system is more progressive than any other OECD country, by several measures. (And if you count state taxes in the U.S. and the corresponding value added tax in the European countries, it would only increase this difference). It isn’t only that the wealthy in America pay more taxes because they earn more money. Compared to the relative income they earn, the top 10 percent pay a higher relative share of taxes than their European counterparts.

    The argument that the top earners are not paying their “fair share,” or that the 2001/2003 tax cuts gave the wealthy in America a free ride, simply does not hold water. So, if moral reasons come up short, what about economic ones? It is true that the deficit is at unsustainable levels—but this is due to outrageous spending, like the failed stimulus package and the harmful bailouts. The deficit is caused by spending, not by tax cuts.

    Tax hikes would also harm the current economic recovery. The majority of those filing in the upper income brackets have small business income or investments. Increasing taxes on business could cost the economy dearly. Former Congressional Budget Office director Douglas Holtz-Eakin calculates that an increase in the top rate could reduce small business hiring by 18 percent. The majority of economists agree that raising taxes at this time is the worst possible policy. Myths aside, the Bush tax cuts should be extended in full, even for “the rich.”

    Posted in Economics [slideshow_deploy]

    17 Responses to The Truth About the 2001-2003 Tax Cuts

    1. Houston TX says:

      If the top 1% paid 40% of all FIT, what proportion of all taxable income did the top 1% earn. How does the earnings scale change as one moves up the percentiles? It seems that that comparison would be an appropriate foil to your point of view.

    2. Dusty, Chicago says:

      The Left seems to hate the truth, no matter if we're talking about cries of racism or attempts to "fix" the economy. Obama's recent press conference in the White House's rose garden was another classic example of the huge gap between what liberals say they want to do, and what their policies actually do.

      Read more about that ridiculous press conference here: http://rjmoeller.com/2010/08/what-i-learned-in-th

    3. Jay Banerjee says:

      You're argument goes sour when you say "failed stimulus package and harmful bailouts." You have no basis for saying that, other than a blind theory of smaller government, less taxes on the wealthy, etc. In fact, I could not begin to imagine living through the downfall of our country with the absence of those acts. The link below shows how much Bush's TARP and Obama's stimulus and further bailouts helped guide this nation towards a recovery. The only truth we can see from the 01-03 tax cuts is this: a lost decade of American growth. It created a bubble of speculation and debt, and put dollars in the hands of the wrong people. Imaging where our country would be if Bush decided to give America a $3 trillion 21st century modernization act instead of wasting that money by giving it to consumers. If only…

    4. Jay Banerjee, Westmo says:

      You're argument goes sour when you say "failed stimulus package and harmful bailouts." You have no basis for saying that, other than a blind theory of smaller government, less taxes on the wealthy, etc. In fact, I could not begin to imagine living through the downfall of our country with the absence of those acts. The link below shows how much Bush's TARP and Obama's stimulus and further bailouts helped guide this nation towards a recovery. The only truth we can see from the 01-03 tax cuts is this: a lost decade of American growth. It created a bubble of speculation and debt, and put dollars in the hands of the wrong people. Imaging where our country would be if Bush decided to give America a $3 trillion 21st century modernization act instead of wasting that money by giving it to consumers. If only…

      http://www.guardian.co.uk/business/2010/jul/28/us

    5. Patrick, Howell, MI says:

      Liberals lie. It's funny to watch them pretend to support "keeping the middle-class Bush tax cuts" when for nine years they claimed the cuts were only for the super-rich.

      It must be hard being a liberal and having to lie about everything, all day long. How do you keep it all straight?

    6. Iain, US says:

      Jay-

      Your first problem is citing the guardia. Your secind problem is that you probably still believe that the tyrant FDR got the US out of the Great Depression. He didn't. He and Hoover made it worse. Next, what recovery? The one whereGM is producing a piece of junk car and unemplyment is still near 10% and that's before you count those that have left the labor force.

    7. Brad, Chicago says:

      Jay, your argument fails when you use a hypothetical projection (the study in the Guardian link) as the basis. There is no way to know how things would have turned out without the stimulus. I think that will be studied and debated for decades to come. Democrats freely admit that their projections were wrong about the severity of the recession, but they, then, try to use that admission as evidence that their new projections are correct. Normally, being wrong the first time makes one wary of the second attempt (fool me once… and all that). Instead, the same people want us to accept their revised projections because they know, now, that they underestimated. If they were that certain they were right, at the time, that we needed to act immediately, I have little confidence in their abilities. If they weren't certain and called for action anyway, I have little confidence in their wisdom. That lack of confidence extends to the people who chose to listen to them.

    8. Kristina, Gloucester says:

      Can you imagine how much money the top 1% of earners has to earn in order to foot pay 40% of all of the taxes in the country. It's not even a matter of "how much that person can spare" because they have too much already. When you are incredibly industrious, have a little bit of ingenuity, and for the young entreprenuers, possibly a little luck, wouldn't it be nice to actually enjoy the benefits that of that hard labor, do some philanthropic work, and put some money towards the next greatest invention, or perhaps nestle some away for a lengthy retirement so that the kids, grandkids or government don't actually have to take care of you when you no longer have the latest greatest ideas. We have an extremely dynamic economy and a vibrant society where anyone at anytime can break out and do phenomenal things. Of course to do phenomenal things, you must take great risks.

    9. Todd, Albany, OR says:

      Jay of Westmont, IL

      Do you actually believe that President Bush wasted my money by giving it back to me? Your faith in the wisdom of the Federal Government is frightening. Please stop voting.

    10. Adam, Buffalo, NY says:

      Can someone explain why liberals seem to have this belief that money just materializes out of nothing? Or why, when it doesn't seem to materialize anymore, they think we can just print it and not expect it to lose value? – Or cause economic failure? I cannot wrap my head around this kind of thinking. It is mind-boggling.

    11. Leonid, Reston, VA says:

      So called "rich" in most cases worked very hard, took incredible risks (not like 9 to 5 salaried workers), employed people, contributed to economy immensely and at the end are paying a majority of revenues the FED is getting from taxpayers. But for someone who is not "rich", never took any risks, worked at secure jobs at academic institutions or factories and at the end are complaining about "rich" not paying enough. What is a tragedy that people think this way! But that is why we have so many "liberals" who in reality should be called socialists since by not agreeing that the "rich" pay enough taxes they are advocating for redistribution of wealth. I am far from being rich, but I worked hard for many years and whatever I earned paid my share of taxes. When Bush tax cut came around in 2001-2003 every penny that I received extra I either invested in my business or purchased goods that added to economy or donated for good causes. Letting the tax cuts to expire will damage economy that is struggling to recover. More unemployment and more suffering by people in the 50% that pay very little or no taxes. You need to get out of the socialist redistribution box to understand that simple concept. But for many who never took a risk and tried to succeed in business this is a foreign concept.

    12. Houston, TX says:

      If people get food stamps and Housing money (rent) and 'free' medical many may decide to not even try to find work. Are we creating incentive for groups of people not to work. Then who will pay the taxes for their support. Mr Obama will be gone in couple of years and public has to carry the burden for generations. The administration (both parties) have been doing it over the years adding a bit at a time.

      Banks were bailed out. Now bail out the Housing and give citizenship to illegals. Same administration is providing bad example. Make bad decisions and if and when needed you will be bailed out but if you work, pay mortgage and work hard to pay taxes irresponsible people will be taken care of with money you paid in taxes.

      What a logic and direction the country is going…..May GOD help America. It needs to be bailed out. But buy who???

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