Monday, August 09, 2004

Bush’s tax “cuts” hurt lower- and middle-class Americans.

Why you’re right:

Four-fifths of Americans will pay more for the tax cuts than they receive. The tax cuts must be financed somehow, either through a reduction in government services or the addition of other taxes. Regardless of how this financing occurs, on average, households that earn less then about $76,400 will wind up receiving a cut smaller than the reduction in services that they accept. Thus, the “cuts” are better thought of as tax cuts for the wealthy subsidized by the rest of America. (CBPP)

Why they’re wrong:

1. It is not possible to postpone paying for tax cuts indefinitely. Government debt can safely grow no more quickly than the economy. With the deficit skyrocketing, and no plausible scenario for running surpluses for years in the future, we cannot afford to allow debt to increase any more. Thus, the tax cuts must be paid for with changes in the federal budget. (CBPP)

2. The recent tax cuts will not pay for themselves. The tax cuts increase the deficit, thereby decreasing national savings and, in turn, future national income. This substantial negative effect is more than enough to offset the small supply-side benefits created by a reduction in marginal tax rates. Studies show that Americans’ decisions about working and spending are relatively insensitive to changes in tax rates. (CBPP-2, NBER)