NCPA - National Center for Policy Analysis


August 24, 2007

It is almost an article of faith on Capitol Hill these days that the Bush tax cuts tilted the income tax system in favor of the rich. If this were true, it would be reflected in the actual data on the distribution of the income tax, says the Wall Street Journal.

In reality, it is not:

  • IRS data indicate that the richest 1 percent, 5 percent and 10 percent of the taxpayers are shouldering a larger percentage of the income tax burden than they would had the Bush tax cuts never materialized.
  • Preliminary 2005 data just released from the Treasury Department show the amount of tax paid by those earning more than $1 million a year increased to $236 billion in 2005, up from $132 billion in 2003, the year of the tax cut.
  • This was a 78 percent increase in taxes paid by millionaire households.

Further, lower tax rates on capital gains and dividends also caused a huge jump in reported income, says the Journal:

  • The National Bureau of Economic Research found an "unprecedented surge in regular dividend payments after the 2003" Bush tax cut.
  • Likewise, the lowering of the capital gains tax was followed by a 150 percent increase in the amount of capital gains unlocked by the 15 percent tax rate.

The supply-side revenue effects on the rich are remarkable: Tax rates on higher incomes have been halved, but the federal tax share of the top 1 percent has nearly doubled, the budget deficit has fallen and government revenues are soaring, says the Journal. That is what happens when tax policy gets the incentives right.

Source: Editorial, "How to Raise Revenue," Wall Street Journal, August 24, 2007.

For text:


Browse more articles on Tax and Spending Issues