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I drink your milkshake!
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I'm not a big fan of Laffer by any means but this analysis is pretty interesting considering most everyone has been told that Bush's tax cuts were for the rich. Actually, it put more of the taxes on the rich and now that the cuts are not being renewed, the rich are getting less of the tax burden.

No one has told you that have they?

http://www.americanthinker.com/2010/03/lying_about_bushs_tax_cuts.html

The majority of the taxpayers in our country believe it a foregone conclusion that taxes will rise substantially in the near future and that the Bush tax cuts will soon be no more than a footnote of political history. You don't need to be a genius to see that the government will have to raise more revenue to pay for seemingly infinite spending, but before we resign ourselves to higher taxes, we should consider defending the Bush tax cuts against the left.


Two of the most oft-cited objections to the Bush tax cuts by the left are that it helped only the rich and it was largely responsible for the federal deficit at the end of the Bush presidency. Instead, it is true that if the current administration allows any or all of the Bush tax cuts to expire, economic growth will be slowed and tax revenue could actually decrease, perpetuating our deficit dilemma.


The Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 broadly lowered income, capital gains, dividends, and estate taxes. Fanning the lie that only the rich benefited, liberal economists Peter Orszag and William Gale described the Bush tax cuts as reverse-government redistribution of wealth, "[shifting] the burden of taxation away from upper-income, capital-owning households and toward the wage-earning households of the lower and middle classes." This criticism stuck so well that it is difficult to find a liberal today who doesn't believe that these tax relief measures were anything more than "tax cuts for the rich."


But the data does not support this conclusion. According to the non-partisan Congressional Budget Office (CBO), the Bush tax cuts actually shifted the total tax burden farther toward the rich so that in 2000-2004, total income tax paid by the top 40% of income-earners grew by 4.6% to 99.1% of the total.




This shift may have occurred because as the wealthy (who are arguably the most industrious and productive citizens) are better-incentivized to be industrious and productive through lower taxes, they create higher incomes for themselves and end up paying more taxes. The Bush tax cuts did shift the tax burden, but not in the direction most liberals think.


The second major misconception spread by the left about the Bush tax cuts is that the lower tax rates caused the federal deficit woes we face today. Keeping with the party line of blaming the previous administration for all of today's problems, Speaker Nancy Pelosi (D-CA) quipped in a news conference on January 8 of this year: "Let me just say that the tax cuts at the high end ... have been the biggest contributor to the budget deficit." Of course, the Speaker would have us believe that overspending has nothing to do with our deficit.


In fact, the Bush tax cuts actually increased government revenue. According to economist Brian Reidl of the Heritage Foundation, The Laffer Curve (upon which much of the supply-side theory is based) merely formalizes the common sense observations that


•1. Tax revenues depend on the tax base as well as the tax rate,
•2. Raising tax rates discourages the taxed behavior and therefore shrinks the tax base, offsetting some of the revenue gains, and
•3. Lowering tax rates encourages the taxed behavior and expands the tax base, offsetting some of the revenue loss.


If policymakers intend cigarette taxes to discourage smoking, then they should know that high investment taxes will discourage investment and income taxes will discourage work. Lowering taxes encourages people to engage in the given behavior, which expands the base and replenishes some or all of the lost revenue. This is the "feedback effect" of a tax cut.


The following figure is an illustration of the Laffer Curve. The curve postulates that two tax rates exist between the extremes of no tax and 100% tax that will collect the same amount of revenue: a high tax rate on a small tax base and a low tax rate on a large tax base. Whether or not a tax cut recovers 100% of the lost revenue depends on the tax rate's location on the Laffer curve. When tax rates are above the equilibrium point on the Laffer curve, reducing the tax rate increases revenue.




So what was the effect of the Bush tax cuts? The data reveals that tax revenues in 2006 were actually $47 billion above the levels projected by the Congressional budget office before the 2003 tax cuts. Clearly, tax rates were beyond the point of equilibrium.


The Bush tax cuts were intended to increase market incentives to work, save, and invest and thus create jobs and increase economic growth. An analysis of the six quarters before and after the 2003 tax cuts shows that this is exactly what happened. The following table from Reidl's analysis depicts these effects.






The empirical data makes it impossible to validate the liberal claims that the Bush tax cuts were "for the rich," or that they "caused the budget deficit," or that they were in any way responsible for causing this latest economic crisis. In fact, a study by economist John W. Skorburg underscores the positive effects of the Bush tax cuts. Skorburg's study found that the Bush tax cuts, which lowered the total federal tax burden from 20.9% in fiscal year 2000 to 17.9% in fiscal year 2008 and 2009, were responsible for increasing the economic growth rate. Further, the author concluded that "f President Obama raises tax burdens, trend growth in real GDP will fall."


The bottom line is that tax policy has far-reaching effects, and for decades, liberals have refused to acknowledge them. The dire consequences of higher tax burdens in times of economic weakness were made most clear when FDR raised taxes in 1937, causing a double-dip in GDP that prolonged the Great Depression. If the Bush tax cuts are allowed to expire, recovery from the current crisis will likely be prolonged, and we will have no one to blame but ourselves for not observing the lessons of history.
 

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JFK understood that tax cuts could spur the economy and THEN increase revenue (of course, he also wanted a strong military, believed in God, was anti-********...he would be a CONSERVATIVE today given the overall shift to the left).

I just dug up an old 457b account that allows withdrawals (without 10% penalty), so I'm taking it all NOW, before the rates go up next year. Work HARDER with increased taxation? That is a tough argument to sell!
 

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But the data does not support this conclusion. According to the non-partisan Congressional Budget Office (CBO), the Bush tax cuts actually shifted the total tax burden farther toward the rich so that in 2000-2004, total income tax paid by the top 40% of income-earners grew by 4.6% to 99.1% of the total.

Just one part of the article that's bugging me. The 4.1% tax shift to the richest 20% corresponds to a rise from 91.3 to 92.5% in total wealth owned by that 20% (see table 1). All that says to me is that a greater part of America's wealth belongs to people in a higher tax bracket and therefore, is taxed at a higher rate. This reads as an issue of distribution to me, rather than the success/failure of a tax regime.

On a side note, that means that the bottom 80% of America was sharing 7.5% of the wealth in the country, and that dropped to 7% by 2007... sheesh
 

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I drink your milkshake!
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Discussion Starter #7
Just one part of the article that's bugging me. The 4.1% tax shift to the richest 20% corresponds to a rise from 91.3 to 92.5% in total wealth owned by that 20% (see table 1). All that says to me is that a greater part of America's wealth belongs to people in a higher tax bracket and therefore, is taxed at a higher rate. This reads as an issue of distribution to me, rather than the success/failure of a tax regime.

On a side note, that means that the bottom 80% of America was sharing 7.5% of the wealth in the country, and that dropped to 7% by 2007... sheesh
Actually it is 91.2 to 92.5 in the top 20% but I see your point, but your point is skewed a bit. Even with the rise in money of 1.3%, the tax burden on that rose disproportionately by 4.3%. You can complain about the wealth of the lower 80% dropping by 1.7%, but along with that drop there was a corresponding drop of roughly 1.5% to 2.0% across the bottom 80%.

So the point still remains that the tax burden shifted to the richest in society under the Bush tax cuts rather than favoring them unfairly.
 

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Actually it is 91.2 to 92.5 in the top 20% but I see your point, but your point is skewed a bit. Even with the rise in money of 1.3%, the tax burden on that rose disproportionately by 4.3%. You can complain about the wealth of the lower 80% dropping by 1.7%, but along with that drop there was a corresponding drop of roughly 1.5% to 2.0% across the bottom 80%.

So the point still remains that the tax burden shifted to the richest in society under the Bush tax cuts rather than favoring them unfairly.
rounding error on my part, the total comes out to 99.9% and I attributed .1% to the wealthiest 20%, but I stand corrected in either case.

As to the OP's point, there question of tax burden is more complicated than just one graph. Bear in mind that as the distribution of wealth widens, more families become eligible for government subsidies and the like, thus making a -.9% tax burden possible.
Foodstamps, for example:

or unemployment:


I'm much more inclined to believe that the decline in tax burden on the lower 80% had more to do with phenomena like these had more to do with the change in tax burden than the tax cuts might have, especially considering that total tax receipts dropped something like 10% between 2000 and 2004. To put it bluntly, the wealthiest 20% were still able to pay their taxes, while the bottom 60% were hit by hard times.

To put it in rough figures (multiplying tax burden against receipts for the period in question) we get
in 2000, the rich paid $1,644,460m
in 2004 they paid $1,603,747m
or $41 billion dollars less

there's a lot more nuance to the tax code than this, but that larger burden on the wealthy actually cost them less for a rising share of the financial wealth in the country. Thus my skepticism with OP's article.
 

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I am more inclined to believe that the decline in wealth of the low income folks and the decline in the taxes paid by them is due to the global trade agreements that gave their jobs away. Since they lost good paying jobs and now sweep floors or flip burgers for a living they have less income, less wealth, and pay very little in taxes.

Both parties agreed to this little screwup and they should both be held accountable.
 

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Statistics can be made to basically suggest anything. All I know for certain is that the wealthy run DC and probably game the tax laws in their favor, depending on the economic cycle and whatever they can get away with at the time.
 

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Statistics can be made to basically suggest anything.
Indeed, most of the charts we might want to use reflect the reality we want to illustrate. For instance, one of the charts shows tax burden from 1979 through 2007, rather than the 8 years this thread began discussing.
I'm pretty sure this thread belong in a politics section, not a finance forum.
 

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I drink your milkshake!
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Discussion Starter #12
Indeed, most of the charts we might want to use reflect the reality we want to illustrate. For instance, one of the charts shows tax burden from 1979 through 2007, rather than the 8 years this thread began discussing.
I'm pretty sure this thread belong in a politics section, not a finance forum.
Read the chart again there Matt. The two colored columns are from 2000 and 2004. The information from those columns were taken from the CBO information from 1979 - 2004.
 
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