Numbers
show different side of tax cuts
Chris
Dennis
Marshall Medoff
Jason
Garthoffner (Daily Forty-Niner, Oct. 1)
deserves a prominent position in the Bush
administration. He has done a fine job disguising
tax cuts that give almost 40 percent of
their benefits to the wealthiest one percent
of American households (households that,
today, have an annual income of more than
$300,000). His article is filled with so
many demonstrably inaccurate or untrue assertions
that it is difficult to know where to begin.
But,
let's start. Garthoffner suggests that the
Republican Party stands for economic policies
that are fair. Under the Bush Tax Cuts of
2001 and 2003, the amount of money going
to the wealthiest one percent of households
is greater than the amount of money going
to the entire poorest 70 percent of American
households (households with annual incomes
up to approximately $75,000) combined. These
data come from two reports by the Citizens
for Tax Justice: (1) "Year-by-Year
Analysis of the Bush Tax Cuts Shows Growing
Tilt to the Very Rich," June 12, 2002;
(2) "Final Tax Plan Tilts Even More
Toward Richest," May 22, 2003 (both
can be found at www.ctj.org). Similar estimates
can also be obtained from the Congressional
Budget Office. Furthermore, when Garthoffner
calculates the percentage of federal taxes
paid by various income groups, he only examines
the income tax. If he included federal payroll
taxes (Social Security and Medicare) he
would find that a much greater percentage
of the federal tax burden is borne by low
and middle-income earners.
Garthoffner
indicates that the Republican Party stands
for economic policies that have been proven
historically. Yes, tax cuts help an economy
in a recession, provided they are targeted
to the middle and lower income groups who
spend the money and stimulate aggregate
demand. Since the rich save more, and spend
less, of each dollar they receive in tax
cuts than do middle and low income individuals,
tax cuts to the rich have less impact on
the demand for goods and services than tax
cuts going to middle and low income individuals.
Since the 2001 and 2003 Bush Tax Cuts were
enacted, the economy has lost more than
two million jobs. Better targeting of the
cuts to middle and low income families would
have either produced a gain in jobs, or
a smaller loss, than under the Bush Tax
Cuts.
Garthoffner
further points out that Ronald Reagan's
tax cuts in 1981, the largest in U.S. history,
substantially increased federal tax revenues.
Unfortunately what Garthoffner omits is
that the Reagan administration was forced
to raise taxes several times during this
period. Historically, only about 30 percent
of a tax cut is "self-financing"
(i.e., the increased economic activity resulting
from the tax cut only replaces about 30
percent of the revenue lost from the tax
cut). Additionally, the growth rate of the
economy was smaller during the Reagan years
than it was during the Clinton years, even
though Clinton raised taxes on the same
high income groups that have received such
large tax cuts from the Bush administration.
Concerning
California, Garthoffner notes that California
has one of the highest state tax rates in
the country. California ranks 10th in personal
income but 19th in state and local tax burdens.
Wealthier states can better afford higher
tax burdens than poorer states. Thus, while
a state and local tax burden ranked 19th
highest is slightly above average, it is
not as high as one would expect given the
state's wealth. Today, California is best
classified as a moderately high tax/high
service state. Furthermore, California's
level of service is not always that "high."
Concerning education, California ranks approximately
40th in per student expenditures (i.e.,
approximately 40 of the 50 states spend
more per student on K-12 education than
does California).
From
1979 to 1999, after adjusting for inflation,
the income of the poorest 20 percent of
American households increased by 2.8 percent,
for families in the middle of the income
distribution the corresponding figure was
approximately 10 percent while the inflation
adjusted income of the wealthiest 1 percent
of households -- whom Garthoffner is so
concerned are "over taxed" --
increased by approximately 157 percent (i.e.,
more than 50 times the rate of the poorest
20 percent and about 15 times the rate of
middle income households - see Paul Krugman,
"For Richer," New York Times,
Oct. 22, 2002). In the face of such glaring,
and increasing inequalities, the Bush administration
is willing to spend almost four times as
much money ($350 billion over ten years
versus $89 billion over ten years) on the
permanent repeal of the estate tax (which
applies only to estates of over $1,000,000)
as it is to help the 43.5 million Americans
(80 percent of whom are in households with
at least one full time worker) without medical
insurance obtain it. We would like to hear
the president explain to hard working, low
income families why we should spend four
times as much money to relieve the estate
tax burden of wealthy heirs (who receive
their inheritance through the mere accident
of birth) rather than help low income workers
provide health insurance for their families.
Chris
Dennis is a professor of political science
and Marshall Medoff is a professor of economics
at Cal State Long Beach.
|
