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Top half of workers bear virtually all of the burden

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Two-Tiered Tax System Attacks the Rich

Top half of workers bear virtually all of the burden

Congressional Republicans have taken a boatload of criticism about out-of-control federal spending in recent months.  The party has effectively abandoned many of its core principles and is spending money like the Democrats.

They even appeared to be dithering on tax cuts; and if Republicans don’t cut taxes, who will?

Before their congressional recess, however, Republicans returned to their senses and their roots and passed a $70 billion tax cut stretched over five years.

OK, so it’s not in the same league with the $1.7 trillion 10-year Bush tax cuts passed in 2001 and 2003.

  • Truth is, much of this package simply keeps those 2001 and 2003 tax cuts in place.The legislation extends the 15% tax rates on capital gains and dividends for two more years, through 2010.
  • It also protects 15.5 million taxpayers who are not rich from the burden of the punitively high alternative minimum tax (AMT), which would have kicked in at around $160,000 annual income.

Of course the broken-record critics say the plan favors the rich at the expense of the poor.

Except . . . all the data show that the tax cuts mean that higher-income workers are shouldering a bigger portion of the total income tax burden.

Thanks to the Bush tax cuts, the poorest Americans are disappearing from the tax rolls.  They don’t get benefits from the tax cut legislation because they’re paying little or no federal income tax already.

According to the Joint Economic Committee of Congress, the top 50% of earners paid 96.54% of federal personal income tax in 2003.

And the Congressional Budget Office says that in 2003 the poorest 20% of Americans were paying a mere 1% of all federal taxes, and -2.6% of individual income taxes (the Earned Income Tax Credit means they get more than they pay, hence a negative figure).

The 20% of Americans with the highest income, by contrast, paid 83% of all individual income taxes.

Thus, instead of giving the wealthy a big tax break, it would be more accurate to say we are creating a two-tiered tax system, where the top half of the workers bear virtually all of the federal income tax burden.

So if the Democrats reallywant to stick it to the rich, the best thing they could do is support the new round of tax cuts.

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Written By

Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter: @MerrillMatthews.

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