Tax Cuts and the Wealthy: A Match Made in Washington
Robert Fantina
April 16, 2007
When President Bill Clinton left office at the start of 2001, the U.S. government had a budget surplus of $236 billion, the largest ever in U.S. history. In terms of individual impact on U.S. citizens, this means the following:
Lower interest rates cut mortgage payments by $2,000 for families with a $100,000 mortgage;
Lower interest rates cut car payments by $200 for families with a car loan;
Lower interest rates cut student loan payments by $200 for a person with a typical student loan;
Businesses have more funds for productive investment;
Rising investment has contributed to an increase in productivity.
Mr. Clinton’s budget policies, if continued, would have paid off the national debt by 2015. This would have meant the following benefits for American families:
More funds available for increased Social Security and Medicare costs for baby boomers;
More funds available for investment;
Lower interest rates;
Increased worker productivity and income
By 2007, under the policies of President George W. Bush and the Republican-controlled Congress, the surplus had long since disappeared, replaced by the largest deficit in American history. At the end of his first term, the deficit was $413 billion dollars; by the end of 2006 it was a ‘mere’ $260 billion. The national debt exceeded $8 trillion.
To put this in more individual terms, assuming the population of the United States is 301,120,218, then that $8 trillion dollars equates to a debt of each citizen of $29,271.00.
Mr. Bush appears to consider his tax cuts among the choicest of his achievements since his questionable election in 2000. Many citizens received a rebate averaging approximately $300.00 early in Mr. Bush’s first term. The president stated more than once that these monies were simply what Americans had overpaid, and that it was due back to them.
When Mr. Bush first proposed his tax cuts in 2001, he introduced them in the presence of three families, each representing one of the new lower tax brackets he proposed. When asked why there was no representative of the highest tax bracket present, he identified himself as that person. His annual income at the time, including his salary as president, was approximately $2,000,000.00. The three families with him would benefit by between $1,055.00 and $2,181.00. Mr. Bush would benefit by approximately $100,000.00.
It appears that the wealthiest Americans overpaid the most, and therefore were to receive the greatest benefit. As then Senate Minority Leader Tom Daschle succinctly put it, “If you make over $300,000 a year, this tax cut means you get to buy a new Lexus. If you make $50,000 a year, you get to buy a muffler on your used car.” Many home-owning citizens saw an increase in their property taxes which either equaled or exceeded the rebate they had received, as states attempted to make up the shortfall in monies they generally received from the federal government and used to augment the provisioning of services to their citizens.
Mr. Bush’s tax cut included what he called the removal of the ‘double tax’ on shared dividends. Companies are required to pay taxes on their profits; a portion of those profits are issued to shareholders in the form of dividends, and those shareholders then pay taxes on the dividends. Most taxes are, in some sense, ‘double taxes.’ An individual pays tax on his/her income, and then may use part of that income to purchase clothing, an automobile, or any other item. The seller makes a profit from the sale of that item, and must pay taxes on that profit.
Many Americans own shares in a wide variety of companies, but only about one fourth of them ever receive dividends. That one fourth is, of course, included among the wealthiest Americans. Far more people own pension funds, but they are not part of Mr. Bush’s tax elimination plan.
Mr. Bush has constantly pushed to make the tax cuts permanent. If they are maintained through 2010, 52% of the total tax cuts will have benefited 1% of Americans; that 1% are the richest citizens in the nation.
There is certainly some logic in the theory that tax relief should be equally shared; if the middle class is going to receive a tax break at X%, than the rich should also receive a tax break at X%. Because X% of $1,000,000.00 is obviously more than X% of, say, $50,000.00, the wealthy would, in terms of dollars and cents, receive a larger tax break.
However, it can also be argued that the wealthy can better afford to pay a higher tax rate. A person earning $1,000,000.00 is obviously in a better financial position than one earning $50,000.00. Perhaps the wealthy individual could be called upon to pay a higher tax rate, thus enabling the government to provide services to him/herself as well as to the other individual, who may, for example, be struggling to pay college tuition for a child, an expense the wealthy individual can fairly easily afford. So while the middle-class wage earner might receive a tax break at X%, it may not be unfair for the wealthy wage earner to receive a tax break at somewhat less than X%.
One can only wonder if the tax cuts are, in fact, nothing more than a reward to Mr. Bush’s wealthy supporters. The tax cuts have greatly helped to drive the deficit and debt to the astounding proportions which they have now reached. Additionally they have done little, if anything, to stimulate economic growth that can be experienced by the middle class. Had they been a failed experiment in economic stimulation, Mr. Bush would not be nearly rabid in his efforts to make them permanent.
The keeping of campaign promises is a laudable quality, and one not often seen. Mr. Bush promised to cut taxes if elected, so perhaps he was simply keeping that pledge. However, why he chose to promise it in the first place may be troubling. As Sen. Tim Johnson (D- ND) commented in 2001: Mr. Bush “… arrived at his number because of the importance of his primary and he had to get to the tax-cutting side of Steve Forbes.” Mr. Forbes, a conservative businessman, was an early contender for the Republican presidential nomination in 2000. Mr. Bush had to prove his own, conservative, business-oriented credentials against the upstart Mr. Forbes.
Another question with an obvious but disturbing answer concerns the Republican-led Congress’s willingness to pass tax cuts that hurt their poor and middle class constituents. With polls consistently showing that people in those categories favor increased services over tax cuts by a wide margin, it would seem that their elected representatives would act accordingly. That this has not been the case may seem puzzling at first.
However, upon closer scrutiny, an answer becomes obvious. In order to avoid any real challenges to their re-nomination and reelection, politicians must reward their most influential (read: wealthy) supporters. These are the people who can be relied upon to invest large amounts of cash into re-election campaigns, often swamping lesser known and more poorly funded opposition candidates. That these opposition candidates may speak more clearly for the average citizen in the district or state is unimportant when money can be infused into an incumbent’s campaign from grateful donors who have had their tax burdens lifted. Job security, often lacking for poor and middle-class citizens, is often at the forefront of the minds of elected officials. Unfortunately, it appears to be their own job security that is of primary interest.
In order for the country to balance its budget, it must earn at least as much as it spends; in the current situation, the country must earn far in excess of what it spends in order to pay down the national debt. Yet under Mr. Bush, America’s revenues, in the form of taxes, have decreased continually. In 2000, the last year of Mr. Clinton’s administration, the federal government’s revenues were approximately 21% of the Gross Domestic Product (the value of goods and services produced within the country). By 2004, the government’s revenues were less than 16% of the GDP. Although the country was in a recession in 2001, it was Mr. Bush’s tax cuts, more than the recession, that caused this significant decrease in the government’s revenues.
Another statistic to view is the official poverty rates established by the government. A family of four – two parents and two children – earning below $19, 157.00 is officially living in poverty. In 1993, 15.1% of the U.S. population was living in poverty. Between 1993 and 2000, the poverty rate fell each year, reaching 11.3 percent in 2000. According to a report of the Joint Economics Committee delivered by Senator Charles E. Schumer (D- NY), the poverty rate under Mr. Clinton fell by 3.5 percentage points, meaning that approximately 6.4 million people climbed out of poverty during his administration. In contrast, approximately 5.4 million people are newly poor under Mr. Bush; the poverty rate since his inauguration has risen by 1.3 percent.
As Congress and various experts begin to more loudly decry the dismal financial situation that Mr. Bush and his Republican associates in Congress have created, the president has proposed a new budget that he says will balance the budget within ten years. However, he intends to do this by making his tax cuts permanent, thus enabling the wealthy to continue to buy that extra Lexus while the middle class replaces their muffler, and by cutting the budget for such services as Medicaid and veteran’s benefits. The elderly will pay more for medical services, and injured veterans and their families will find fewer services available to them.
The national debt must be paid; this is money that has been borrowed either from citizens in the form of bonds, or from other nations. So-called baby boomers, most of whom are nearing retirement age, will not be required to pay back this massive debt. Mr. Bush and the Republican Party have demonstrated their belief that this can be accomplished by reducing the tax burden for the wealthy and depriving the neediest citizens of essential, government-provided services. It is possible that, with renewed spending constraint, this will be accomplished. However, once must look at the inequality that will be caused by these policies.
This responsibility to pay off the national debt will fall to the children and grandchildren of ‘baby boomers,’ but it will not happen until an administration that demonstrates fiscal responsibility makes the hard choices necessary to get the country out of its burdensome debt. In any generally-prosperous democracy, that burden should not be placed mainly on the shoulders of wounded veterans, the elderly and the poor. During the first six (6) disastrous years of the Bush Presidency, however, the deficit and corresponding debt did not seem to be taken seriously. Now, when the chorus of warning voices is too loud and strident to be ignored, Mr. Bush and the Republican members of Congress look past the wealthy as a possible source of debt relief, and further victimize the most vulnerable members of society.
Lower interest rates cut mortgage payments by $2,000 for families with a $100,000 mortgage;
Lower interest rates cut car payments by $200 for families with a car loan;
Lower interest rates cut student loan payments by $200 for a person with a typical student loan;
Businesses have more funds for productive investment;
Rising investment has contributed to an increase in productivity.
Mr. Clinton’s budget policies, if continued, would have paid off the national debt by 2015. This would have meant the following benefits for American families:
More funds available for increased Social Security and Medicare costs for baby boomers;
More funds available for investment;
Lower interest rates;
Increased worker productivity and income
By 2007, under the policies of President George W. Bush and the Republican-controlled Congress, the surplus had long since disappeared, replaced by the largest deficit in American history. At the end of his first term, the deficit was $413 billion dollars; by the end of 2006 it was a ‘mere’ $260 billion. The national debt exceeded $8 trillion.
To put this in more individual terms, assuming the population of the United States is 301,120,218, then that $8 trillion dollars equates to a debt of each citizen of $29,271.00.
Mr. Bush appears to consider his tax cuts among the choicest of his achievements since his questionable election in 2000. Many citizens received a rebate averaging approximately $300.00 early in Mr. Bush’s first term. The president stated more than once that these monies were simply what Americans had overpaid, and that it was due back to them.
When Mr. Bush first proposed his tax cuts in 2001, he introduced them in the presence of three families, each representing one of the new lower tax brackets he proposed. When asked why there was no representative of the highest tax bracket present, he identified himself as that person. His annual income at the time, including his salary as president, was approximately $2,000,000.00. The three families with him would benefit by between $1,055.00 and $2,181.00. Mr. Bush would benefit by approximately $100,000.00.
It appears that the wealthiest Americans overpaid the most, and therefore were to receive the greatest benefit. As then Senate Minority Leader Tom Daschle succinctly put it, “If you make over $300,000 a year, this tax cut means you get to buy a new Lexus. If you make $50,000 a year, you get to buy a muffler on your used car.” Many home-owning citizens saw an increase in their property taxes which either equaled or exceeded the rebate they had received, as states attempted to make up the shortfall in monies they generally received from the federal government and used to augment the provisioning of services to their citizens.
Mr. Bush’s tax cut included what he called the removal of the ‘double tax’ on shared dividends. Companies are required to pay taxes on their profits; a portion of those profits are issued to shareholders in the form of dividends, and those shareholders then pay taxes on the dividends. Most taxes are, in some sense, ‘double taxes.’ An individual pays tax on his/her income, and then may use part of that income to purchase clothing, an automobile, or any other item. The seller makes a profit from the sale of that item, and must pay taxes on that profit.
Many Americans own shares in a wide variety of companies, but only about one fourth of them ever receive dividends. That one fourth is, of course, included among the wealthiest Americans. Far more people own pension funds, but they are not part of Mr. Bush’s tax elimination plan.
Mr. Bush has constantly pushed to make the tax cuts permanent. If they are maintained through 2010, 52% of the total tax cuts will have benefited 1% of Americans; that 1% are the richest citizens in the nation.
There is certainly some logic in the theory that tax relief should be equally shared; if the middle class is going to receive a tax break at X%, than the rich should also receive a tax break at X%. Because X% of $1,000,000.00 is obviously more than X% of, say, $50,000.00, the wealthy would, in terms of dollars and cents, receive a larger tax break.
However, it can also be argued that the wealthy can better afford to pay a higher tax rate. A person earning $1,000,000.00 is obviously in a better financial position than one earning $50,000.00. Perhaps the wealthy individual could be called upon to pay a higher tax rate, thus enabling the government to provide services to him/herself as well as to the other individual, who may, for example, be struggling to pay college tuition for a child, an expense the wealthy individual can fairly easily afford. So while the middle-class wage earner might receive a tax break at X%, it may not be unfair for the wealthy wage earner to receive a tax break at somewhat less than X%.
One can only wonder if the tax cuts are, in fact, nothing more than a reward to Mr. Bush’s wealthy supporters. The tax cuts have greatly helped to drive the deficit and debt to the astounding proportions which they have now reached. Additionally they have done little, if anything, to stimulate economic growth that can be experienced by the middle class. Had they been a failed experiment in economic stimulation, Mr. Bush would not be nearly rabid in his efforts to make them permanent.
The keeping of campaign promises is a laudable quality, and one not often seen. Mr. Bush promised to cut taxes if elected, so perhaps he was simply keeping that pledge. However, why he chose to promise it in the first place may be troubling. As Sen. Tim Johnson (D- ND) commented in 2001: Mr. Bush “… arrived at his number because of the importance of his primary and he had to get to the tax-cutting side of Steve Forbes.” Mr. Forbes, a conservative businessman, was an early contender for the Republican presidential nomination in 2000. Mr. Bush had to prove his own, conservative, business-oriented credentials against the upstart Mr. Forbes.
Another question with an obvious but disturbing answer concerns the Republican-led Congress’s willingness to pass tax cuts that hurt their poor and middle class constituents. With polls consistently showing that people in those categories favor increased services over tax cuts by a wide margin, it would seem that their elected representatives would act accordingly. That this has not been the case may seem puzzling at first.
However, upon closer scrutiny, an answer becomes obvious. In order to avoid any real challenges to their re-nomination and reelection, politicians must reward their most influential (read: wealthy) supporters. These are the people who can be relied upon to invest large amounts of cash into re-election campaigns, often swamping lesser known and more poorly funded opposition candidates. That these opposition candidates may speak more clearly for the average citizen in the district or state is unimportant when money can be infused into an incumbent’s campaign from grateful donors who have had their tax burdens lifted. Job security, often lacking for poor and middle-class citizens, is often at the forefront of the minds of elected officials. Unfortunately, it appears to be their own job security that is of primary interest.
In order for the country to balance its budget, it must earn at least as much as it spends; in the current situation, the country must earn far in excess of what it spends in order to pay down the national debt. Yet under Mr. Bush, America’s revenues, in the form of taxes, have decreased continually. In 2000, the last year of Mr. Clinton’s administration, the federal government’s revenues were approximately 21% of the Gross Domestic Product (the value of goods and services produced within the country). By 2004, the government’s revenues were less than 16% of the GDP. Although the country was in a recession in 2001, it was Mr. Bush’s tax cuts, more than the recession, that caused this significant decrease in the government’s revenues.
Another statistic to view is the official poverty rates established by the government. A family of four – two parents and two children – earning below $19, 157.00 is officially living in poverty. In 1993, 15.1% of the U.S. population was living in poverty. Between 1993 and 2000, the poverty rate fell each year, reaching 11.3 percent in 2000. According to a report of the Joint Economics Committee delivered by Senator Charles E. Schumer (D- NY), the poverty rate under Mr. Clinton fell by 3.5 percentage points, meaning that approximately 6.4 million people climbed out of poverty during his administration. In contrast, approximately 5.4 million people are newly poor under Mr. Bush; the poverty rate since his inauguration has risen by 1.3 percent.
As Congress and various experts begin to more loudly decry the dismal financial situation that Mr. Bush and his Republican associates in Congress have created, the president has proposed a new budget that he says will balance the budget within ten years. However, he intends to do this by making his tax cuts permanent, thus enabling the wealthy to continue to buy that extra Lexus while the middle class replaces their muffler, and by cutting the budget for such services as Medicaid and veteran’s benefits. The elderly will pay more for medical services, and injured veterans and their families will find fewer services available to them.
The national debt must be paid; this is money that has been borrowed either from citizens in the form of bonds, or from other nations. So-called baby boomers, most of whom are nearing retirement age, will not be required to pay back this massive debt. Mr. Bush and the Republican Party have demonstrated their belief that this can be accomplished by reducing the tax burden for the wealthy and depriving the neediest citizens of essential, government-provided services. It is possible that, with renewed spending constraint, this will be accomplished. However, once must look at the inequality that will be caused by these policies.
This responsibility to pay off the national debt will fall to the children and grandchildren of ‘baby boomers,’ but it will not happen until an administration that demonstrates fiscal responsibility makes the hard choices necessary to get the country out of its burdensome debt. In any generally-prosperous democracy, that burden should not be placed mainly on the shoulders of wounded veterans, the elderly and the poor. During the first six (6) disastrous years of the Bush Presidency, however, the deficit and corresponding debt did not seem to be taken seriously. Now, when the chorus of warning voices is too loud and strident to be ignored, Mr. Bush and the Republican members of Congress look past the wealthy as a possible source of debt relief, and further victimize the most vulnerable members of society.