Tax Cuts For The Rich?

Despite the preponderance of contrary evidence, myths persist that tax cuts primarily benefit "the rich" and have no discernible impact on economic growth.

Months ago, for instance, Hillary Clinton charged that "slashing taxes on the wealthy hasn't worked.  And a lot of really smart, wealthy people know that."

She's right that it hasn't worked, but she failed to mention that it's also never happened.  The tired "tax cuts for the rich" canard is disproven by the 1920s, the 1960s, the 1980s, and the 2000s, when tax rates were reduced for all – and especially low – income groups.

As I've explained before, the argument is maintained by misleadingly observing raw dollars rather than percentage cuts.  Since top earners begin with higher incomes (and tax burdens), a smaller-percentage tax cut translates into more dollars than does a larger-percentage tax cut for lower earners.  For instance, a 10-percent tax cut to someone earning $1 million is a lot more in dollars than a 20-percent tax cut for someone who's earning $100,000, when in fact the person earning the lesser amount receives a steeper percentage cut.

Consider the rate reductions under George W. Bush.  The top rate was lowered from 39.6 percent to 35 percent – a 13-percent decline.  Meanwhile, the bottom rate dropped from 15 percent to 10 percent – a 33-percent reduction.  So yes, the cuts were tilted, but toward the bottom.  (It's also worth noting that 10,000 low-income earners were removed from the income tax rolls entirely)

Moreover, the result of the cuts was that a larger proportion of total income tax revenue was paid by the wealthy.  As Brian Riedl noted:

The share paid by the top quintile edged up from 66.6 percent in 2000 to 67.1 percent in 2004, while the bottom 40 percent's share dipped from 5.9 percent to 5.4 percent. Clearly, the tax cuts have led to the rich shouldering more of the income tax burden and the poor shouldering less.

Quite the opposite of "helping the rich."


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