Tax Cutting And Tax Fairness
April 19, 2001
Critics of President George W. Bush's tax-cut plan fault it for being "unfair" -- because more of the benefits accrue to high-income earners. They would rather see the surplus used to pay down the nation's debt -- claiming that would be fairer toward those with lower incomes.
But advocates of across-the-board rate cuts point out that its opponents are missing a few financial realities.
- While a reduction of say 5 percent in tax rates would return more dollars to high-income earners who are paying more in taxes, paying down the debt would also disproportionately benefit the same high-earners -- because it would relieve them of the burden of servicing and redeeming the debt through future high tax payments.
- Fairness also demands that the relatively higher level of productivity associated with high-income earners be recognized -- and their greater contributions be rewarded.
- When marginal tax rates are reduced by about the same number of percentage points across the board, the proportional reduction in the lowest tax bracket is much larger than the corresponding reduction in the highest bracket -- 33 percent and 14 percent respectively in the Bush plan.
"Fairness" isn't served by denying proportionally higher benefits to those who are paying proportionally higher taxes.
Source: Charles Wolf Jr. (Hoover Institution), "Tax Fairness Is in the Eye of the Beholder," Wall Street Journal, April 17, 2001.
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