Category Archives: Taxes

Dumas: Bush Tax cuts are tilted towards the Rich

December 15, 2010 – 8:34 pm

HALT: Halting Arkansas Liberals with Truth

Ernest Dumas in his article “A Broken System,” (Arkansas Times, December 9) asserts that the Bush tax cuts favored the richest Americans and businesses. Dumas contends that the 2001 and 2003 Bush tax cuts have brought massive deficits and stymic economic growth.

NOTICE TO LIBERALS: The rich are now paying even more of the tax load than they did before this tax cuts were enacted and a tremendous increase in federal spending has been the cause of these massive deficits.

I am responding to these liberal assertions with a portion from an article published January 29, 2007 called, “Ten Myths About the Bush Tax Cuts” by Brian Riedl.He has discussed budget policy on NBC, CBS, PBS, CNN, FOX News, MSNBC, and C-SPAN.  He also participates in the bipartisan “Fiscal Wake-Up Tour,” which holds town hall meetings across America focusing on the looming crisis in Social Security, Medicare, and Medicaid.

Myth #10: The Bush tax cuts were tilted toward the rich.
Fact: The rich are now shouldering even more of the income tax burden.

Popular mythology also suggests that the 2001 and 2003 tax cuts shifted more of the tax burden toward the poor. While high-income households did save more in actual dollars than low-income households, they did so because low-income households pay so little in income taxes in the first place. The same 1 percent tax cut will save more dollars for a millionaire than it will for a middle-class worker simply because the millionaire paid more taxes before the tax cut.

In 2000, the top 60 percent of taxpayers paid 100 percent of all income taxes. The bottom 40 percent collectively paid no income taxes. Lawmakers writing the 2001 tax cuts faced quite a challenge in giving the bulk of the income tax savings to a population that was already paying no income taxes.

Rather than exclude these Americans, lawmakers used the tax code to subsidize them. (Some economists would say this made that group’s collective tax burden negative.)First, lawmakers lowered the initial tax brackets from 15 percent to 10 percent and then expanded the refundable child tax credit, which, along with the refundable earned income tax credit (EITC), reduced the typical low-income tax burden to well below zero. As a result, the U.S. Treasury now mails tax “refunds” to a large proportion of these Americans that exceed the amounts of tax that they actually paid. All in all, the number of tax filers with zero or negative income tax liability rose from 30 million to 40 million, or about 30 percent of all tax filers. The remaining 70 percent of tax filers received lower income tax rates, lower investment taxes, and lower estate taxes from the 2001 legislation.

Consequently, from 2000 to 2004, the share of all individual income taxes paid by the bottom 40 percent dropped from zero percent to –4 percent, meaning that the average family in those quintiles received a subsidy from the IRS. By contrast, the share paid by the top quintile of households (by income) increased from 81 percent to 85 percent.

Expanding the data to include all federal taxes, the share paid by the top quintile edged up from 66.6 percent in 2000 to 67.1 percent in 2004, while the bottom 40 percent’s share dipped from 5.9 percent to 5.4 percent. Clearly, the tax cuts have led to the rich shouldering more of the income tax burden and the poor shouldering less.

In 2008 the first of 77 million baby boomers received their first Social Security checks. The subsequent avalanche of Social Security, Medicare, and Medicaid costs for these baby boomers will be the greatest economic challenge of this era.

How to slow down this huge increase in federal spending should be the budgetary focus of  Congress rather than repealing Bush tax cuts or allowing them to expire. Repealing the tax cuts would not significantly increase revenues. It would, however, decrease investment, reduce work incentives, stifle entrepreneurialism, and reduce economic growth. Lawmakers should remember that America cannot tax itself to prosperity.

Above you will see a clip by Ron Paul that makes it clear that spending is the problem not the lack of taxes. Ron Paul is a favorite of the Tea Party movement and that because he is very good at defending liberty. When government tries to take over more power in our lives, then liberty suffers.

By Everette Hatcher III | Comments (0)

Dumas: Unemployment Benefits will help stimulate Economy

December 15, 2010 – 4:08 am

HALT: Halting Arkansas Liberals with Truth

The Republicans have been made out to be the Grinch that stole Christmas because they did not want to extend unemployment benefits again. In fact, we have been told by the Democrats that unemployment benefits will help stimulate the economy, and we should not be trying to help the millionaires while the unemployed could help stimulate the economy so much faster.

Ernest Dumas in his article “Politics, tax policy converge,” (Arkansas Times) stated that “taxes on people of great wealth do not stunt demand like they do for the middle class, which spends, not saves, when taxes are cut.”

In his article “A Broken System,” (Arkansas Times, December 9), concerning the recent deal between the Republicans and President Obama, Dumas noted, “The compromise–sellout is a better description–includes some marginally hopeful parts. Obama won an extention of unemployment benefits and another stimulus benefit, a one-year reduction in payroll taxes that will give people another $120 billion to spend next year to see if it will stimulate demand.”

NOTICE TO LIBERALS: Government spending does not stimulate the economy because government must first tax or borrow that money out of the private economy which defeats the purpose in the first place.

Have you learned yet? Look at the stimulus that was supported (by Democrats only)when President Obama first came into office and the predictions made then. Did any of those predictions come true? Actually unemployment increased by almost two points!!!

I am responding to these liberal assertions with a portion from an article published January 29, 2007 called, “Ten Myths About the Bush Tax Cuts” by Brian Riedl. Riedl is the Grover Hermann Fellow in Federal Budgetary Affairs at the Heritage Foundation and Riedl’s budget research has been featured in front-page stories and editorials in The New York Times, The Wall Street Journal, The Washington Post and The Los Angeles Times. 

Myth #8: Tax cuts help the economy by “putting money in people’s pockets.”
Fact: Pro-growth tax cuts support incentives for productive behavior.

Government spending does not “pump new money into the economy” because government must first tax or borrow that money out of the economy. Claims that tax cuts benefit the economy by “putting money in people’s pockets” represent the flip side of the pump-priming fallacy. Instead, the right tax cuts help the economy by reducing government’s influence on economic decisions and allowing people to respond more to market mechanisms, thereby encouraging more productive behavior.

The Keynesian fallacy is that government spending injects new money into the economy, but the money that government spends must come from somewhere. Government must first tax or borrow that money out of the economy, so all the new spending just redistributes existing income. Similarly, the money for tax rebates—which are also touted as a way to inject money into the economy—must also come from somewhere, with government either spending less or borrowing more. In both cases, no new spending is added to the economy. Rather, the government has just transferred it from one group (e.g., investors) in the economy to another (e.g., consumers).

Some argue that certain tax cuts, such as tax rebates, can transfer money from savers to spenders and therefore increase demand. This argument assumes that the savers have been storing their savings in their mattresses, thereby removing it from the economy. In reality, nearly all Americans either invest their savings, thereby financing businesses investment, or deposit the money in banks, which quickly lend it to others to spend or invest. Therefore, the money is spent by someone whether it is initially consumed or saved. Thus, tax rebates create no additional economic activity and cannot “prime the pump.”

This does not mean tax policy cannot affect economic growth. The right tax cuts can add substantially to the economy’s supply side of productive resources: capital and labor. Economic growth requires that businesses efficiently produce increasing amounts of goods and services, and increased production requires consistent business investment and a motivated, productive workforce. Yet high marginal tax rates—defined as the tax on the next dollar earned—serve as a disincentive to engage in such activities. Reducing marginal tax rates on businesses and workers increases the return on working, saving, and investing, thereby creating more business investment and a more productive workforce, both of which add to the economy’s long-term capacity for growth.

Yet some propose demand-side tax cuts to “put money in people’s pockets” and “get people to spend money.” The 2001 tax rebates serve as an example: Washington borrowed billions from investors and then mailed that money to families in the form of $600 checks. Predictably, this simple transfer of existing wealth caused a temporary increase in consumer spending and a corresponding decrease in investment but led to no new economic growth. No new wealth was created because the tax rebate was unrelated to productive behavior. No one had to work, save, or invest more to receive a rebate. Simply redistributing existing wealth does not create new wealth.

In contrast, marginal tax rates were reduced throughout the 1920s, 1960s, and 1980s. In all three decades, investment increased, and higher economic growth followed. Real GDP increased by 59 percent from 1921 to 1929, by 42 percent from 1961 to 1968, and by 31 percent from 1982 to 1989. More recently, the 2003 tax cuts helped to bring about strong economic growth for the past three years.

Policies which best support work, saving, and investment are much more effective at expanding the economy’s long-term capacity for growth than those that aim to put money in consumers’ pockets.

(Below Senator John Thune interviewed by Sean Hannity on Dec 9th)

By Everette Hatcher III | Comments (0)

Brantley, Lyons and Dumas: Blame Bush Tax Cuts for Deficit

December 14, 2010 – 1:27 pm

HALT: Halting Arkansas Liberals with Truth

Big news on capital hill today is that President Obama has cut a deal with the Republicans concerning the extention of the Bush Tax Cuts and that has some liberals in Arkansas hopping mad.

In 1981 when I was in college, I got to hear the famous economist Arthur Laffer speak about the notorious Laffer Curve that Ronald Reagan had been touting leading up to the passage of his massive tax cuts of 1981. Simply put the Laffer curve is the curved graph that illustrates the theory that, if tax rates rise beyond a certain level, they discourage economic growth, thereby reducing government revenues.

It was exciting to me that the economic theory that ringed true to me because of the Kennedy Tax cuts in the 1960’s would be tested again with the 1981 Reagan Tax Cuts and now can be applied to the Bush Tax Cuts. We don’t have to argue about economic theory that has never been tested but we can simply look at history.

Max Brantley on Dec 6th posted these words from Paul Krugman of the NY Times: “America, however, cannot afford to make those (Bush Tax) cuts permanent. We’re talking about almost $4 trillion in lost revenue just over the next decade…”

Ernest Dumas in the article “Politics, Tax Policy Converge,” states, “What about the deficit, the horror that is driving voter rage this year? The Republican plan to extend all the tax cuts forever would add $4 trillion to the national debt over the next decade.”

Gene Lyons in his article “Sure, the Government is just like your Family,” (Nov 22), states, “The current deficit’s almost entirely a product of two things: the Bush tax cuts and the recession.”

NOTICE TO LIBERALS: The increase in spending has been the real problem the last ten years and will be the next ten years. Not the tax cuts.

I am responding to these assertions with a portion from an article published January 29, 2007 called, “Ten Myths About the Bush Tax Cuts” by Brian Riedl. Riedl is the Grover Hermann Fellow in Federal Budgetary Affairs at the Heritage Foundation and holds a bachelor’s degree in economics and political science from the University of Wisconsin, and a master’s degree in public affairs from Princeton University.

Myth #5: The Bush tax cuts are to blame for the projected long-term budget deficits.
Fact: Projections show that entitlement costs will dwarf the projected large revenue increases.

The unsustainability of America’s long-term budget path is well known. However, a common misperception blames the massive future budget deficits on the 2001 and 2003 tax cuts. In reality, revenues will continue to increase above the historical average yet be dwarfed by historic entitlement spending increases.

For the past half-century, tax revenues have generally stayed within 1 percentage point of 18 percent of GDP. The CBO projects that, even if all 2001 and 2003 tax cuts are made permanent, revenues will still increase from 18.4 percent of GDP today to 22.8 percent by 2050, not counting any feedback revenues from their positive economic impact. It is projected that repealing the Bush tax cuts would nudge 2050 revenues up to 23.7 percent of GDP, not counting any revenue losses from the negative economic impact of the tax hikes.

In effect, the Bush tax cut debate is whether revenues should increase by 4.4 percent or 5.3 percent of GDP.

Spending has remained around 20 percent of GDP for the past half-century. However, the coming retirement of the baby boomers will increase Social Security, Medicare, and Medicaid spending by a combined 10.5 percent of GDP. Assuming that this causes large budget deficits and increased net spending on interest, federal spending could surge to 38 percent of GDP and possibly much higher.

Overall, revenues are projected to increase from 18 percent of GDP to almost 23 percent. Spending is projected to increase from 20 percent of GDP to at least 38 percent. Even repealing all of the 2001 and 2003 cuts would merely shave the projected budget deficit of 15 percent of GDP by less than 1 percentage point, and that assumes no negative feedback from raising taxes. Clearly, the French-style spending increases, not tax policy, are the problem. Lawmakers should focus on getting entitlements under control.

By Everette Hatcher III | Comments (0)