Tax Cuts for the Wealthy

The Congressional Budget Office has completed a study of Effective Federal Tax Rates Under Current Law, 2001 to 2014 (pdf format). It is a fascinating little document that examines the effects of the three "Bush tax cuts for the wealthy":

Lawmakers enacted three major tax bills between 2001 and 2003. The Economic Growth and Taxpayer Relief Reconciliation Act of 2001 (EGTRRA) lowered rates, increased credits, and offered relief from marriage penalties and from the alternative minimum tax (AMT). The Job Creation and Worker Assistance Act of 2002 (JCWAA) increased depreciation allowances for some property and altered certain provisions concerning operating losses. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) accelerated some of the provisions in EGTRRA and temporarily raised exemption levels for the AMT. None of the tax provisions in the three laws is permanent, and all of the provisions will expire by 2011. Furthermore, because many provisions phase in and phase out between 2001 and 2010, taxes change in every year through 2011.

First, you can check out where you are in the grand scheme of things:

	Lowest Quintile	$ 14,900
	Second Quintile	$ 34,200
	Middle Quintile	$ 51,500
	Fourth Quintile	$ 75,600
	Highest Quintile	$ 182,700

So if your household makes between $51,500 and $74,599 (inclusive), then you are in the "Middle Quintile".

Now let's examine your effective tax rate and how the tax cuts help you:

Total Effective Federal Tax Rate Under Current Tax Law, Based on 2001 Incomes, by Income Category, 2001 to 2014

Income Category	Lowest Quintile	Second Quintile	Middle Quintile	Fourth Quintile	Highest Quintile
2001	5.4	11.6	15.2	19.3	26.8
2002	5.3	11.6	15.0	19.1	25.4
2003	5.2	11.0	14.5	18.5	24.4
2004	5.2	11.1	14.6	18.5	23.8
2005	5.5	12.0	15.6	19.6	26.3
2006	5.6	12.1	15.7	19.8	26.5
2007	5.7	12.3	15.9	20.0	26.5
2008	5.8	12.4	15.9	20.1	26.4
2009	5.9	12.4	16.1	20.4	27.1
2010	5.8	12.3	16.1	20.5	27.1
2011	7.8	14.2	17.6	21.8	28.5
2012	8.0	14.4	17.8	22.0	28.6
2013	8.1	14.5	18.0	22.2	28.7
2014	8.3	14.7	18.2	22.4	28.8

Heavens to Mergatroid! The tax cuts didn't seem to help out anyone! By 2010, every quintile is paying more taxes! And those wretched poor people in the lowest quintile! Even their effective tax rate goes up 4/10^ths of a percent by the time the tax cuts sunset.

But wait, there's more! How would everyone have faired if the tax cuts hadn't been put into place?

Total Effective Federal Tax Rate Under 2000 Tax Law, Based on 2001 Incomes, by Income Category, 2001 to 2014

Income Category	Lowest Quintile	Second Quintile	Middle Quintile	Fourth Quintile	Highest Quintile
2001	6.2	12.8	16.1	20.1	27.3
2002	6.4	12.9	16.3	20.3	27.4
2003	6.5	13.1	16.4	20.4	27.5
2004	6.7	13.2	16.5	20.6	27.6
2005	6.8	13.3	16.6	20.7	27.7
2006	7.0	13.5	16.8	20.9	27.8
2007	7.2	13.6	16.9	21.1	28.0
2008	7.3	13.8	17.1	21.2	28.1
2009	7.5	13.9	17.2	21.4	28.2
2010	7.6	14.0	17.4	21.6	28.3
2011	7.8	14.2	17.6	21.8	28.4
2012	8.0	14.4	17.8	22.0	28.5
2013	8.1	14.5	18.0	22.2	28.7
2014	8.3	14.7	18.2	22.4	28.8

Looking at that bottom quintile again we see that without the "tax cuts for the wealthy", the poorest among us would have a 1.8% increase in effective tax rate by 2010: they would be paying 1.4% more than with the Bush tax cut. In fact, as a percent of income, the lowest quintile benefits more than any other class of citizen.

The bottom line?

Relative to the situation in 2000, the three major tax laws enacted between 2001 and 2003—EGTRRA, JCWAA, and JGTRRA—reduce effective federal tax rates for each quintile in every year from 2001 through 2010.

So, the tax cuts for the wealthy benefits everyone. I guess that means that Democrats think that anyone making more than $14,900 a year is rich!

Update: Donald Luskin does this topic better in an NRO article called Liberal Lies, CBO Truths.

Blog post #3354 in category Economics
posted 17 August 04

 

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