Doing the Math behind the Bush Tax Plan
by Kerry A. Swift

"The Government shouldn't block the way into the middle class for hard working people who are trying to get there," President George W. Bush firmly declared Tuesday in the kick off to the public relations blitz on behalf of his 10-year, $1.6 trillion tax cut.  "No American," President Bush added in extolling his plan, "should pay more than a third of his or her income to the federal government in taxes."

It is an argument that most Americans probably find persuasive on its face.  But just who are these hard working Americans forced to cough up a third of their earnings at the federal tollbooth into the middle class?  A simple perusal of the 2000 Tax Tables published by the IRS and some long division yields the answer: a single wage earner would need taxable earnings (that is, after all deductions) of $340,000 to pay one-third of his or her income in federal taxes.  For married couples this figure rises to $415,000.  For a head of household, it is $380,000.

Of course, the higher tax brackets phase-in at much lower levels of taxable income: couples who earn more than $161,450 fall in the 36% tax bracket; single taxpayers who earn more than $64,000 pay taxes at 31%; and so on.  And therein lies an important misconception in the tax cut debate now underway: most Americans--including our President, apparently--do not understand the meaning and effects of a marginal tax rate.

Because the tax rate is marginal, the married couple making $161,450 doesn't pay 36% on its entire income.  Instead, it pays 15% on the first $43,850; 28% on the next $62,100; 31% on the next $55,500; and 36% only on the margin that exceeds $161,450.  As a result, the percentage of income paid in federal taxes is lower--often, significantly lower--than the marginal tax rate for every single taxpayer.

This, however, is not simply an exercise in the sort of mathematical esoterica that only an IRS accountant could appreciate: the marginal tax rate effect hides the gross inequity of President Bush's tax plan from the ignorant public.  President Bush and his aides, anxious to defuse criticism that the tax plan favors the wealthy over working Americans, breezily point out that "the biggest percentage cuts will go to the families who need it most," as the on-message President repeatedly emphasized on Tuesday.

Indeed, the lowest tax bracket will drop from 15% to 10% under the Bush plan, a 33% reduction; the highest bracket, by comparison, falls from 39.6% to 33%, a mere 16.7% decline.  So the tax cut must be twice as great for working families as for the wealthy, right?

Wrong.

When the bottom marginal bracket drops to 10%, that's a tax cut for every married couple on their first $43,850 (for single taxpayers, $26,250), rich and poor alike, regardless of their total taxable income.  Collapsing the 31% and 28% tax brackets into 25% reduces the rate on the next $116,500 for every married couple making more than $161,450.  And so on up the ladder.

The results are dramatic, yet entirely unappreciated by the majority of the public that fails to understand an opaque tax code.  The "GwB Tax Calculator" on the Bush campaign's home page (www.bush2000.com), which offered taxpayers the opportunity to calculate in advance their tax savings should Bush win the election, showed that the typical married couple earning less than $100,000 could expect a tax cut of approximately 1.7% of its taxable income.

It is revealing to compare this figure to the tax cut for a married couple in the top 1% of wage earners with taxable income of more than $340,000.  Unfortunately, the "GwB Tax Calculator" did not go beyond $100,000, as the fabulously wealthy apparently did not need as much cajoling to realize that a Bush victory was, literally, money in their pockets. The New York Times "Truth Squad," however, found that the wealthiest taxpayers could expect a cut of approximately 5% of their income.  This, ironically, in an October 19 article that disputed Vice President Gore's claim that a taxpayer in the top 1% would receive a larger tax cut than everybody in attendance at the Town Hall debate in St. Louis.  (The charge would have been accurate, the article concluded, only if fewer than 101 people had attended the debate.)

One can easily verify that tax cuts as a percentage of income increase considerably with overall wealth by re-working the rates in the IRS tax tables.  Put simply, wealthy American receive a tax cut 3 times greater than working families, as a percentage of income, under the Bush plan.  Why?  Because they receive 5 tax cuts, in effect: one at each bracket in the marginal tax schedule.  Working families, by comparison, get only 1 tax cut, 2 at most.

Unfortunately, Congressional Democrats have failed to highlight the fundamental inequity of the Bush tax plan in a language that resonates with the public.  The bulk of the tax relief goes to the top 1% of wage earners--enough for the wealthy taxpayer to purchase a new Lexus and the working class family a new muffler, Senate Minority Leader Tom Daschle noted.  Such claims would be true even of a tax cut that is distributed equitably, simply because income is not.  As a result, the Bush administration easily brushes away such charges as "class warfare."

Those who pay the most taxes naturally will receive the greatest benefits.  But that alone is no defense for an unfair tax cut, the momentum for which is sustained largely by the publicís inability to double-check the Presidentís arithmetic.
 
 

Back to Opinions Index
 

Email: [email protected]
As a policy, LDSDEMOCRATS does not respond to offensive or inflammatory emails.