The Los Angeles Times provided a liberal spin on the Bush tax cut with an analysis by syndicated columnist Matthew Miller: “The tax bill was the big battle of the Bush presidency. Liberals shouldn’t delude themselves. The central reality lost in the hoopla over Sen. James Jeffords’ move out of the GOP is that the passage of the tax cut already gives the president more than he could possibly have hoped for in his first two years. Every Washington debate will take place in its shadow.”
Miller’s right. Already, the “shadow” of the 10-year tax cut of $1.3 trillion, the exact number Bush campaigned on last year, can be seen in the federal budget, set to grow at an annual rate of a bit over 4 percent, a significant drop from the more than 6 percent rate of growth in federal spending in the last few Clinton years.
Simply stated, we’re paying too much in federal taxes, creating record surpluses, and it’s either the politicians who are going to spend the money or the taxpayers who earned it. If the 6 percent rate of federal spending increases were allowed to continue, for instance, it would add $1.4 trillion to the current federal budget projections over the next 10 years. Instead, the tax bill cuts the tax burden by $1.3 trillion over the same period.
Sen. Tom Daschle and other Democratic leaders have painted the tax cut as a “risky scheme” that would wipe out debt reduction, enrich the fat cats, kill the poor and starve the government. Instead, the Bush budget has federal spending growing at double the rate of inflation, providing record levels of funding for education and prescription drugs and paying down every dollar that’s possible on the national debt over the next decade, all while delivering the largest tax cut in 20 years and keeping D.C. awash in a sea of surplus tax revenue. “The tax bill,” explains Sen. Chuck Grassley, chairman of the Senate Committee on Finance, “refunds only 24 cents of each dollar of the projected surplus.”
And the rich and the poor? The accounting firm of Deloitte & Touche calculated the tax savings for married couples with two children under age 17. At a $36,000 income level, the tax bill falls by $800, a 52.6 percent tax cut. With a $100,000 income, the tax cut is $911, a 7.6 percent reduction. At a $1 million income level, taxes fall by $4,604, a 1.5 percent tax cut.
Tom Daschle points out that $4,604 is bigger than $800. What he doesn’t talk about, of course, is the $300,000 federal income tax bill of the more well-to-do couple, or the fact that it’s tough to have an across-the-board tax cut that doesn’t benefit “the rich” in a tax system where upper-income families pick up a disproportionate share of the federal tab.
The latest data from Congress’ Joint Committee on Taxation, for instance, shows that the top 1 percent of taxpayers (incomes of $250,000 and above) paid 33 percent of all federal income taxes, the top 5 percent (incomes of $108,000 and more) paid 54 percent, the top 10 percent (incomes of $79,000 and above) paid 66 percent, the top 25 percent (incomes of $48,000 and above) paid 82 percent, and the top half of all households (earning $40,800 and more) paid 96 percent of all federal income taxes.
In addition, the share of the total income tax burden that these upper-income groups pay is notably greater than the share of total income they earn. The top 1 percent of earners, for example, earns 17 percent of total national income and pays 33 percent of federal income taxes. Similarly, the top 5 percent earns 32 percent of total income and pays 54 percent of the income tax bill.
When all the dust has settled, the bottom line of the Bush tax cut is that 95 million taxpayers will get to keep more of their earnings, producing an increase in consumer spending and a subsequent expansion of incentives for investment, business expansion and job creation.
Jack Faris, president of the National Federation of Independent Business, the nation’s largest small-business organization, explains how the Bush tax cut will deliver the goods in the small-business sector, calling it the “ripple effect.”
Explains Faris: “It’s small businesses, not large corporations, who employ well over half of the non-farm private sector workforce and create two out of three new jobs in this country. More than half of all small-business owners, some 6 million, file their taxes as individuals – not as corporations – and the lower personal income taxes under the new tax bill will encourage small business growth, increase employment levels and raise wages. We know, for example, that there’s a direct relationship between the earning levels of small-business owners and the level of wages paid to their employees, the frequency of health insurance offered and the frequency of employee pension plans provided.”
Liberals may not like the term, but what Faris is describing is “trickle-down” economics – tax cuts for business owners creating more jobs with higher wages and better benefits. Either way, call it “trickle-down” or the “ripple effect,” it’s the way the world works. Tom Daschle’s analysis? “This is a tax fraud in more ways than one.” He’s wrong, in more ways than one.