A school of political and economic argument goes something like this: every economic ill can be cured by tax cuts. It’s clearly rubbish when stated that way, yet the same logic is given far too much credence every time it is overused.
A very good piece by William Gale at the Washington Post, “Five myths about the Bush tax cuts,” (hat tip reader Francois T) shreds the idea that the rescinding or reining in the Bush tax cuts (scheduled to lapse this year) would be a bad idea.
Oddly, Gale pulls his punches by dignifying the canard that the Bush tax reductions were for everyone. Per the second paragraph:
The cuts lowered tax rates across the board on income, dividends and capital gains; eventually eliminated the estate tax; further lowered burdens on married couples, parents and the working poor; and increased tax credits for education and retirement savings.
This is technically correct but misleading. John Quiggin and others have pointed out that the benefits of income tax cuts over the last 30 years have accrued disproportionately to the top 10%. The Bush tax cuts were so egregiously skewed towards the well off that Warren Buffett objected to them, with Buffett noting that as a result, his secretary paid a higher percentage of her income in taxes than he did. Similarly, 100 uber rich individuals, including Steven C. Rockefeller and other members of the Rockefeller family, Metropolitan Museum board chairwoman Agnes Gund, and George Soros, signed a letter opposing a proposed 2001 estate tax repeal.
Do read Gale piece in its entirety, since it shreds many of the claims made as to why the Bush tax cuts were beneficial to the economy, and most of these arguments are trotted out to promote tax cuts, particularly for high earners. For instance, one widely touted myth is that higher taxes on top earners will hurt small businesses:
One of the most common objections to letting the cuts expire for those in the highest tax brackets is that it would hurt small businesses…
This claim is misleading. If, as proposed, the Bush tax cuts are allowed to expire for the highest earners, the vast majority of small businesses will be unaffected. Less than 2 percent of tax returns reporting small-business income are filed by taxpayers in the top two income brackets — individuals earning more than about $170,000 a year and families earning more than about $210,000 a year.
And just as most small businesses aren’t owned by people in the top income brackets, most people in the top income brackets don’t rely mainly on small-business income: According to the Tax Policy Center, such proceeds make up a majority of income for about 40 percent of households in the top income bracket and a third of households in the second-highest bracket. If the objective is to help small businesses, continuing the Bush tax cuts on high-income taxpayers isn’t the way to go — it would miss more than 98 percent of small-business owners and would primarily help people who don’t make most of their money off those businesses.
You’ll find the article here.