Opinion Editorial | |
| Monday, August 2, 1999 | |
Distribution of Tax Burdens and Tax Cuts |
Although Democrats pay lip service to fiscal responsibility in their attacks on the Republican tax cut, the truth is that that is not their main concern. Insofar as it is "too big" in some sense, it is only because it makes less of the surplus available for Democrat spending plans, such as the $111 billion prescription drug benefit Bill Clinton has proposed. What really bothers Democrats is that some of the tax cuts accrue to those with upper incomes. That is what is anathema to them.
Republicans counter that those with upper incomes pay the vast bulk of federal income taxes, while those with low incomes pay virtually nothing. Even the Clinton Treasury Department, which has become deeply politicized under this administration, concedes that 85 percent of all federal taxes are paid by the top 40 percent of families, those with incomes above $49,862. Those with incomes below this level -- 60 percent of all families -- pay just 15 percent of all taxes. Therefore, it is basically impossible to cut taxes without giving disproportionate benefits to those at the top of the income distribution. In any event, even the House tax bill, which is tilted more toward the wealthy than the Senate bill, does virtually nothing to change the existing distribution of taxes (see figure).
Democrats counter that those at the bottom are most in need of help, and no one would deny this. But tax policy can only directly help those who actually pay taxes. The only way to help those who don't is by sending government checks to such people and calling them "tax cuts." This is exactly what the government does with the Earned Income Tax Credit, which is "refundable" for those with no tax liability.
However, although tax cuts may not benefit those at the bottom of the income distribution directly, they do benefit indirectly. When tax cuts stimulate greater saving, investment and work effort by those at the top it creates jobs and raises wages for those at the bottom. Full employment and high wages are clearly a better way of helping those with low incomes than more government hand-outs.
But the fact is that those with the greatest capacity to expand their saving and investment are, once again, those at the top of the income distribution. Thus there is simply no way of getting around the necessity of reducing taxes on the wealthy if we are to expand employment opportunities and raise the incomes of the poor. Opposing a tax cut because it doesn't directly put dollars into their pockets, therefore, is both short-sighted and ultimately counter-productive.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, August 2, 1999.
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