Thursday, December 16, 2010

So Who Got the Best Deal from the Bush Cuts? Answer: Not the Wealthy

The reality checks just keep coming.

Cliff Asness at Forbes today points out what SWNID has experienced personally, along with most gentle readers who pay taxes to Our Republic and do arithmetic: the Bush tax cuts benefited everyone who pays federal income taxes, but especially the middle class. We won't repeat his argument; we'll simply say that it has to do with the effective rate of tax that people actually pay at various incomes, rather than marginal rates alone. In sum, federal income taxes were more progressive after the Bush cuts than before.

If one adds to the equation such middle-class-friendly measures the increased deductions for dependents, added deductions for children, and deductions for tuition, then it comes as no surprise that after the Bush cuts, many middle-class households found themselves paying no federal income tax, while the percentage of federal tax revenues from the wealthy went up sharply. We remember fondly the year that every penny paid by the SWNIDs in federal income taxes was refunded. Sadly, the same could not be said for the insidious 15.3% tax that calls itself "payroll," "FICA," "self-employment" or "Social Security and Medicare." Throw that one into Boston Harbor.

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