Once again, I’m turning to The Economist to articulate something that I’ve been saying, specifically that the current Bush tax cut proposal is not a stimulus bill, regardless of what Bush is trying to say. From the article:
Mr Bush is increasingly selling his tax-cut proposals as a job-creation package. In Arkansas this week he said that the 6% unemployment rate should serve as ?a clear signal? to Congress: ?we need robust tax relief.? The White House claims that if Congress passes tax cuts worth at least $550 billion over ten years, it would create 1m new jobs by the end of next year.
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Sadly, Mr Bush’s claims are not convincing. The notion that a tax plan’s ten-year price-tag provides any measure of its efficacy as a short-term stimulus is absurd. The central component of Mr Bush’s tax plan?the elimination of dividend taxation?would improve the tax code and, probably, long-term growth, but it would do little to boost the economy now. Mr Bush’s people say that ending dividend taxation would raise share prices, which in turn would boost spending. Most economists reply that the boost to share prices would be fairly undramatic (a 5-15% jump is the consensus guess); and any effect on spending would be small and gradual.
On a related note, I finally posted a new comment at Insomnomanic’s story about why Democrats oppose tax cuts after a self-imposed cooling off period. The following explains my concerns that the last tax cut was skewed toward the rich. This is relevant in the current tax cut debate because my opinion is the same about the dividend and capital gains cuts that form a key part of the Bush and Senate plans. (click on the “read more” link to get the full comment).
Sorry about the delay, I’ve been busy and a concise table has been hard to find.
You’re looking at the tax cut as it applies to 2001-2003. If you look at the effects in 2007-2010, you get a completely different picture.
See http://www.taxpolicycenter.org/taxfacts/overview/brackets.cfm.
This was the only table I can find that concisely displays the tax brackets for comparison. I don’t remember what the Tax Policy Center’s position is on the cuts (trust me, it will be the next thing I research).
When you look at 2007, you’re only partially right… the people making under $7K do drop to 10%. Everyone also benefits from the savings on the first $7K of their income. If you ignore those people making under $7K (which I suspect make a negligible percentage of our population), here is the final differential from 2000 and 2007 rates:
39.60: 39.60 - 35 = 4.6 36 : 36 - 33 = 3 31 : 31 - 28 = 3 28 : 28 - 25 = 3So, in 2007 the tax cut gives 11.6% reduction to the top bracket. The 28% bracket (which would have the most to gain from a rate reduction of 3%) saves 10.7%. The other two brackets… under 10%.
The chart says the benefit to the 15% bracket (beyond the shared savings of the creation of the 10% bracket) is an increase of the joint filing limit to 52,500 from 43,850. The other brackets look like they remain static in 2000 dollars (I’m using http://www.bankrate.com/brm/itax/Edit/us_rates/us_rates_personalincome.asp for the 2000 rates… please let me know if those are wrong).
Cleary there were other issues attached to the bill which have an impact on revenue, but it’s harder to assess them. For example, the child tax credit is bigger which will clearly have a bigger impact on those people in the middle and lower brackets. It would be interesting to see what the population distribution is. I think the stats for that can be found at the tax stats page at the IRS (http://www.irs.gov/taxstats/index.html). I haven’t looked at this.
Thanks for pointing out the tax cut was in 2001. I just remember hearing about the tax cut in 2000 (maybe on the campaign trail?), and I was in a rush when I typed the last comment. I never thought about the start of Bush’s term. Silly me.
You’re right about facts, Deb… I’m having dinner right now.
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