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Sat 14 Aug, 2004 12:33 pm
August 13, 2004
Columbia Journalism Review
Hidden Angle - Playing the Numbers
--Susan Q. Stranahan
As he winds down his cross-country campaign swing, John Kerry has changed the subject, according to Jonathan Finer of The Washington Post. With polls showing many Americans are more concerned about the economy than they are about the quagmire in Iraq, the subject has moved to the forefront of the challenger's message.
And the Kerry campaign is already touting today's report by the nonpartisan Congressional Budget Office which confirms what many Democrats and others have asserted: President Bush's tax cuts over the past three years have significantly benefited America's wealthiest.
"According to the new report from the Congressional Budget Office (CBO), about two-thirds of the benefits from the tax cuts, enacted in 2001 and 2003, went to households in the top fifth of earnings, with an average income of $203,740," writes Edmund L. Andrews in today's New York Times.
The Republicans have countered that the tax reductions have produced benefits to all Americans, even those in the lowest economic brackets. Writes Andrews: "People with the bottom fifth of income, for example, averaging earnings of only $16,620, saw their effective tax rate drop to 5.2 percent from 6.7. Yet because lower- and many middle-income families had been paying very little federal income tax in the first place, those in that bottom fifth of earnings received an average tax cut of only $250."
And to drive home the point, Andrews quotes an anonymous "House Republican aide," who proclaims: "It doesn't matter who you are, the report shows that you are better off now than you were before the tax cuts. It's showing that everybody's tax burden has gone down as a result of the tax cuts.''
(Campaign Desk wonders why, if the news is so good, the aide cannot allow himself or herself to be identified -- or why Andrews would give space to an anonymous but totally partisan source solely to spin the findings and not give the other side the same opportunity. Perhaps the aide wanted to be anonymous because the claim is a bit misleading, in that Americans who pay payroll taxes or self-employment taxes, but have no income tax liability, didn't benefit from the cuts.)
Jackie Calmes of The Wall Street Journal also writes (subscription required) about the study, and supplies a nice breakdown of the tax-cut benefits (minus any spins).
The cuts, writes Calmes, "will reduce this year's income taxes for the richest 1 percent of taxpayers by an average of $78,460, more than 70 times the average benefit for the middle 20 percent of taxpayers, congressional analysts found."
Calmes continues:
Using CBO's findings, congressional Democratic staff calculated that the lowest 20 percent of taxpayers -- those with total annual income in 2001 dollars of $14,900 to $34,200 -- receive a tax cut of $250 on average for 2004. The next 20 percent of taxpayers, with incomes as much as $51,500, get an average tax cut of $800, and the middle fifth of taxpayers, which includes those earning as much as $75,600, receive an average $1,090 tax cut.
For the next-highest 20 percent, with income as much as $182,700, the average tax cut for 2004 is $1,770. And for the top fifth of taxpayers, whose annual income is above $182,700, the tax cut is $4,740 on average. The top 1 percent that get an average $78,460 tax cut includes taxpayers with more than $1 million in annual income.
Congressional Republicans countered that the richest 20 percent of taxpayers still will pay 63.5 percent of all income taxes for 2004, as they did in 2001. The CBO analysis doesn't account for reductions in estate taxes.
The issue of who pays how much isn't the entire story in the debate over taxes. As liberal Times columnist Paul Krugman writes today, the Bush tax cuts have "favored unearned income over earned income -- or, if you prefer -- investment returns over wages."
Notes Krugman: "The political problem with a policy favoring investment returns over wages is that a vast majority of Americans derive their income primarily from wages, and that the bulk of investment income goes to a small elite."
As the campaign debate now moves into the squishy topic of the economy (and the morass of tax policy), the opportunities for both sides to spin numbers and benefits will grow exponentially. Yet, as the polls (and common sense) indicate, this is an issue of tremendous importance to voters of all stripes. The need for solid -- and spin-free -- reporting has never been greater.
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Clarification: The above post has been updated to clarify that those who pay only payroll or self-employment taxes but not income taxes would not have benefited from the tax cuts.
Tax Burden Shifts to the Middle
washingtonpost.com
Tax Burden Shifts to the Middle
Presidential Campaigns Draw Differing Conclusions From Report
By Jonathan Weisman
Washington Post Staff Writer
Friday, August 13, 2004; Page A04
Since 2001, President Bush's tax cuts have shifted federal tax payments from the richest Americans to a wide swath of middle-class families, the Congressional Budget Office has found, a conclusion likely to roil the presidential election campaign.
The CBO study, due to be released today, found that the wealthiest 20 percent, whose incomes averaged $182,700 in 2001, saw their share of federal taxes drop from 64.4 percent of total tax payments in 2001 to 63.5 percent this year. The top 1 percent, earning $1.1 million, saw their share fall to 20.1 percent of the total, from 22.2 percent.
Over that same period, taxpayers with incomes from around $51,500 to around $75,600 saw their share of federal tax payments increase. Households earning around $75,600 saw their tax burden jump the most, from 18.7 percent of all taxes to 19.5 percent.
The analysis, requested in May by congressional Democrats, echoes similar studies by think tanks and Democratic activist groups. But the conclusions have heightened significance because of their source, a nonpartisan government agency headed by a former senior economist from the Bush White House, Douglas Holtz-Eakin. The study will likely stoke an already burning debate about the fairness and efficacy of $1.7 trillion in tax cuts that the president pushed through Congress.
"CBO is nonpartisan, it's independent, and right now it works for a Republican Congress with a former Bush economist at its head," said Jason Furman, economic director of the presidential campaign of Sen. John F. Kerry (D-Mass.). "There's no higher authority on the subject."
Girding for the study's release, Bush campaign officials have already begun dismissing it as "the Democrat-requested report."
"The CBO answers the questions they are asked," said Terry Holt, a Bush campaign spokesman. "To the extent the questions are shaded to receive a certain response, that's often the response you get."
The question posed was a standard request for analysis of the type members on both sides of the aisle routinely make of the CBO. In this case the ranking Democrats on the House Ways and Means Committee, the Senate Finance Committee, the House and Senate budget committees and the Joint Economic Committee asked Holtz-Eakin -- the former chief economist of Bush's Council of Economic Advisers -- to estimate the distribution of the tax cuts among income levels, and compare that to tax levels if none of the cuts were passed.
The conclusions are stark. The effective federal tax rate of the top 1 percent of taxpayers has fallen from 33.4 percent to 26.7 percent, a 20 percent drop. In contrast, the middle 20 percent of taxpayers -- whose incomes averaged $51,500 in 2001 -- saw their tax rates drop 9.3 percent. The poorest taxpayers saw their taxes fall 16 percent.
Republican aides on Capitol Hill, speaking on condition of anonymity, said the tax cuts actually made federal income taxes -- as opposed to total taxes -- more equitable.
They point to a different set of numbers within the CBO study that show that the rich are actually paying more in individual federal income taxes. If Social Security, Medicare and other federal levies are excluded, the rich are paying a higher share of income taxes this year than they would have paid with no tax changes, the CBO found. If none of the tax cuts had passed, the top 20 percent would pay 78.4 percent of income taxes this year. Instead, they will pay 82.1 percent. In contrast, the middle-class share of income taxes dropped to 5.4 percent, from 6.4 percent if no tax cuts had passed.
"Are the rich paying their fair share?" asked one GOP aide. "Yeah. They're paying more."
But to Democrats, the conclusion was clear. For the bottom 20 percent of households, the combined Bush tax cuts averaged $250 each. The middle 20 percent received $1,090, while the top 1 percent garnered $78,460, said Democrats on the Joint Economic Committee who analyzed the report.
The tax cuts this year will boost the income of millionaires by 10.1 percent, while middle-income families see a boost of 2.3 percent, the Democrats said.
Congressional Republican aides said the CBO analysis has its limitations. For instance, it assumes that the beneficiaries of business tax cuts passed in 2002 and 2003 are the taxpayers who own stocks, bonds and other stakes in the businesses that received the reductions. But that analysis does not consider new workers hired because of the tax cuts, or higher wages that may have been granted because of the boost to the bottom line.
It also does not reflect that during the 1990s, the tax rates on lower-income households fell considerably due to an expansion of the earned income tax credit and other forms of low-income relief. In that sense, GOP aides said, tax cuts for the wealthy were overdue.
Besides, Holt said, looking narrowly at the distribution of tax cuts ignores the broader benefits -- such as investment, consumer spending, and job creation -- that flow from leaving more money in people's hands and that are spread far more evenly through the economy.
"Tax relief is about fairness, but it's also about economic growth," he said. "So the president's tax relief was both fair and effective, when it comes to bringing us from recession to growth."
But Republicans predicted that Kerry will make the report a major political event, and Furman said the results will be too stark to spin.
"This is the first really detailed government report that says not only did the wealthy get an enormous tax cut, but, if the conclusions are what we expect, the middle class will be left paying a larger proportion of the taxes than they were before," he said.
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