Quote Originally Posted by Ice View Post
PJ, I don't understand. Bush cut the top bracket from 39.5% to 35% if IIRC. He also cut the dividend/long term gain tax to 10% from it's top rate of 39.5%. He drastically increased the estate tax exemption, and dropped the top rate of the gift tax to 35%. When you are pulling in a lot of money, these rate changes cut your overall tax burden substantially.

Now for the lower income earners, he eliminated the div/long term cap gains tax. That's great except most low income earners don't recieve stock dividends nor long term capital gains. When I worked in public accounting, I don't think I ever saw anyone taxed at this rate. The cuts did do some good and created the 10% tax bracket for the lowest earners, but honestly in relative terms, the top earners saw a substantial (hundreds of thousands and even millions) of dollars in tax savings.
Well, as I said, it is very difficult to realize substantial tax reductions for the quintiles that already pay very little or nothing in taxes. However, they engineered the policy in a way that despite the fact that the rich realized larger monetary savings, they also took on an even larger share of the overall burden - and the very poor were given subsidies to make up for the fact that a 5, 10 or 95% tax cut had no impact on them.

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.[17] 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. (See Chart 6.) 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.[18]