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The Wealthy Paid More Taxes Under the Bush Tax Cuts

Posted at noon on Nov. 16, 2012

Stephen Moore walks through the history of tax rates over the last century to demonstrate that “lower rates have shifted the tax burden onto high-income earners and away from the middle class while maintaining the tax code’s progressivity.”

“In 2003, President George W. Bush signed legislation that cut the top income tax rate to 35% from 39.6% and cut taxes on capital gains, too. Federal tax revenues surged by a record $780 billion from 2003-07, when the housing bubble collapsed. And once again, the rich paid more tax, not less. The share of taxes paid by the top 1% rose to 41% in 2007 from 35% in 2003. Tax payments by millionaires doubled from 2003 to 2007 because there were more millionaires and their before-tax incomes rose rapidly.”

7comments
Budget & Taxes, Economy

Headlines

  • Wynstone

    Does Stephen Moore post on PW as “Ken”? This sounds like him. He is suggesting a causal relationship between the lowering of rates and increase in revenue that simply does not exist. To say the rich paid “more tax” under the lower rate is a semantics game. They would not have paid more if their income was static, but it wasn’t.

    • molosky

      Ken’s version is a bit clumsier, but they share the same talking points.

      I love how conservatives think saying “a larger proportion” will confuse people into thinking “higher taxes”

      Obviously the proportion is totally irrelevant. I’m sure Ken is impressed though.

      • Wynstone

        Moore also points out there were “more millionaires” which would belie his portrayal that the burden of the individual millionaire was greater. It is so easy to talk in circles about this stuff.

  • flyers333

    “the share of taxes paid by the top 1% rose to 41% in 2007″ Should that same 1% pay 41% of the taxes if they are earning that percentage of the income? Perhaps a new tax bracket is needed for the top .1% … is their a reliable source for % overall income vs % overall taxes?

  • Jason Katims

    This is the same semantics game they were pulling when occupy was just coming around, he’s just hoping nobody remembers it was debunked. The reason the share of taxes paid by the wealthy went up was because middle class incomes (and tax revenues) stagnated. Upper income earners paid more tax but indeed should have given that they were taking an increasingly disproportionate share of the national income.

  • David_McClurkin

    A careful review of the data suggests that the capital gains tax cut of 2003 to a rate of 15 percent that caused tax revenues to increase, at least in the first year, was just a temporary result.

    It may seem a paradox that a lower capital gains tax typically leads to more tax revenues collected from the tax. But, really, there is no mystery here. The capital gains tax is an easily avoided tax. When the tax rate is high, investors simply delay selling their assets—stocks, properties, businesses, and so on—to keep the tax collector away from their door. When the capital gains tax is cut, asset holders are more likely to sell. Moreover, because a lower capital gains tax substantially lowers the cost of capital, it encourages risk-taking and causes the economy to grow faster, thus raising all government receipts in the long term.

    It is documented that the 2003 tax cuts actually generated a $785 billion increase in federal revenue from 2004-07. Overlooked in such a one-dimensional statement is the fact that Gross Domestic Product (GDP) growth produced an aggregate of almost $10 trillion in the same period. This amount included increased capital gains realization (sales) during the same period of over $2.8 trillion. The prior four years (2000-2003), such sales totaled just $1.6 trillion and were taxed at 20%. With the new 15% tax rate starting in 2004, about $ 428 billion (55%) of the $ 785 billion number was from the huge growth (75%) in capital gains realized. With GDP growing an average of over $660 billion a year at the time, it is simple math to find that tax cuts overall, except for the capital gains tax and its 55% share of the increased revenue collected, had nothing much to do with it.

    The test is, do tax revenues remain at the plateau in the initial year, or not. They do not, so long-term revenue is driven mostly by GDP growth and does not have much to do with the tax decreases.

  • me987654

    This has been smacked down repeatedly by multiple economists.

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