Contrary to the commonly held belief that the Bush tax cuts slashed the tax burden on the richest Americans, they have actually had the reverse effect.
The richest 1 percent, 5 percent and 10 percent of U.S. taxpayers are accounting for a larger percentage of the federal income tax burden than tax estimators say they would have if the 2003 tax cuts had not been implemented, according to an opinion piece in the Wall Street Journal.
The top 1 percent of taxpayers paid 35.7 of federal income taxes in 2004, while they would have paid 30.5 percent without the tax cuts.
The richest 5 percent paid 56.2 percent in 2004, compared to 50.2 percent without the cuts.
Preliminary data from 2005 tells a similar story – Americans earning more than $1 million paid $236 billion in income taxes, up from $132 billion in 2003, the year of the cuts. That was a 78 percent increase in taxes paid by millionaire households.
Also, lower tax rates on capital gains and dividends caused a large increase in reported income, the Journal reported.
Tax rates have generally been falling for the past 25 years, beginning with the Reagan cuts of 1981.
When Reagan took office, the highest marginal tax rate on income, capital gains and dividends was 70 percent, compared to 35 percent today. But during those 25 years tax payments by the richest Americans have risen almost in reverse proportion to the tax rates – the wealthiest 1 percent paid 19 percent of federal income taxes in 1980, compared to the 35.7 percent today.
Another factor to consider: Since the tax cuts of 2003, the budget deficit has actually fallen by $217 billion, to $158 billion this year, due mostly to revenue growth.
The Journal concludes: “The supply-side revenue effects on the rich are remarkable: Tax rates on higher incomes have been halved, but the federal tax share of the top 1 percent has nearly doubled. And the budget deficit has fallen. That’s what happens when tax policy gets the incentives right.”
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