Bush Tax Cuts Mainly Benefit Top Earners, Particularly the Very Top

For those of you who like having the facts, rather than asserting the obvious and hoping you are right, Linda Beale of ataxingmatter has a good post, “The Bush Tax Cuts–good for whom?,” which has a clear presentation of who got the bennies, and why that might not be so good from an economic standpoint.

She reckons the benefit to the top 20% of taxpayers as 58.5% of the total, and if I do my calculus on her figures correctly, the proportion of the tax reduction going to the top 1% is 32.2% (($715 billion/$1.3 trillion) x 58.5%). Why hasn’t this figure been trumpeted more widely? It’s breathtaking.

She also has a good item in her last paragraph about the fact that the AMT relief, which is presented as helping the middle class, is in fact skewed towards the top 20%.

From Beale:

Citizens for Tax Justice has just released a new report analyzing the effects of the Bush tax cuts by income groups….

The top 1% of American taxpayers (i.e., those with more than $450,000 annual income (as of 2007) whose average income is almost one and a half million dollars–so it includes all of the mere millionaires as well as the billionaires like Buffet and Gates) will receive a $715.2 billion decrease in their tax liabilities over the decade ending with 2010. The aggregate tax reduction over the ten years to everybody in the top 20% is about $1.3 trillion. That is more than the sum of the reductions for everybody else: the top 20% get 58.5% of the tax cut dollars over the decade while the remaining 80% get about 41.5% of the tax cut dollars.

One response is simply that the wealthiest necessarily have a bigger tax cut because they already pay more in taxes. But isn’t the point that they should pay more of the taxes?….Even if we accept the argument that tax cuts help rather than hurt the US economy in the long run, it doesn’t follow that tax cuts across the board or tax cuts heavily weighted towards those with the most income will be the most helpful to the economy. In fact, it is likely that tax cuts to people at the lower end of the income distribution will be of the most benefit. Those people need the extra money most and will likely spend it on items that are important to their futures….The same certainly cannot be said for tax cuts for those at the top. They can already satisfy their needs.

So who benefits from the AMT relief? Most of the media coverage talks about the downward creep of the AMT into the “middle class”….But just who do we mean by the term middle class? Well, one interpretation would be anybody that isn’t in the lowest 20% or the highest 20%–i.e., the three middle quintiles of the income distribution with annual incomes between about $18,000 and $84,000 today). In fact, about 28 billion of the cost of extending AMT relief from 2007 to 2010 goes to taxpayers in the lower 80% of the income distribution and about 227 billion goes to taxpayers in the top 20%. So without the extension, there would definitely be more of an impact on the middle class, but the extension itself, without a cap, is again primarily reducing taxes on the upper crust.

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