“It all started with the Bush tax cuts that favored the wealthy,” Lincoln Chafee said Tuesday night. It was the second time he made that assertion — that the Bush tax cuts favored the wealthy. This is dogma on the American Left, and it’s taken as truth by much of the mainstream media.
Chafee’s wording is vague enough that it would be silly to conduct a Pinnochio-style fact check on him, instead it’s valuable to explain what he’s omitting.
Yes, across-the-board cuts to the federal income tax are more valuable, dollarwise, to higher earners, because higher earners pay more income tax. A more informative way to study whether an income tax cut “favors the wealthy,” is to ask, “does it give a higher percentage tax cut to higher-earning taxpayers or lower-earning taxpayers?”
The 2001 Bush tax cut knocked about 7.8 million taxpayers down to zero in federal income tax liabilty — so that’s a 100 percent tax cut. In general, this was a much higher proportion tax cut the less money you made.
The wealthiest 10 percent got a big tax cut, but their share of the federal income tax burden increased after Bush’s tax cut, as you see in the chart below.
The rich were paying a higher share of federal income taxes after President George W. Bush’s tax cut than they were before.
Liberals often respond with a line like this one from Jonathan Chait:
“The real story here is that the proportion of pre-tax income earned by the top 1% has been rising since the late 1970s. The rich paid a higher share of the tax burden in 2008 than in 2001 because they earned a higher share of the income.”
That’s not really an accurate way of describing things, though. Chait’s correct that the wealthy saw their share of income rise through the Bush years. But their share of federal income tax rose faster. Here’s one way to measure it:
While the top 10 percent last decade was earning about 45% of all income, they were paying well more than two thirds of all income taxes. You can create a ratio between a group’s share of national income and share of national taxes. That ratio represents how much they are “overpaying” compared to a system with a totally flat tax with no exemptions or deduction.
Here’s how that ratio changed for the top 10 percent around the Bush tax cuts.
You can see a sharp increase in that ratio after Bush’s tax cuts — meaning the wealthy were increasing their share of taxes more than they were increasing their share of income. The ratio dropped later in the Bush years, but you can see the ratio is clearly higher under Bush than under Clinton.
The next caveat Democrats add is that this calculation doesn’t take other taxes into account. Federal income taxes are the strongest force for progressive taxation in our economy, and so anything that reduces that tax puts relatively more weight on the regressive or flatter taxes, such as state taxes and Social Security tax. But you can’t blame the Bush tax cuts for Rhode Island’s income taxes. And I don’t recall Chafee calling for a cut in the payroll tax.
This isn’t mostly about Lincoln Chafee, though. It’s about a bit of Democratic folklore that Bush in 2001 passed tax cuts for the rich. That’s a misleading statement, and politicians shouldn’t get away with it.
Timothy P. Carney, The Washington Examiner’s senior political columnist, can be contacted at [email protected]. His column appears Tuesday and Thursday nights on washingtonexaminer.com.
