After all, it's your tax cut

Even the NY Times is analyzing it and talking about it in the business pages. See David Cay Johnston’s Big Gain for Rich Seen in Tax Cuts for Investments.

The analysis found the following:

¶Among taxpayers with incomes greater than $10 million, the amount by which their investment tax bill was reduced averaged about $500,000 in 2003, and total tax savings, which included the two Bush tax cuts on compensation, nearly doubled, to slightly more than $1 million.

¶These taxpayers, whose average income was $26 million, paid about the same share of their income in income taxes as those making $200,000 to $500,000 because of the lowered rates on investment income.

¶Americans with annual incomes of $1 million or more, about one-tenth of 1 percent all taxpayers, reaped 43 percent of all the savings on investment taxes in 2003. The savings for these taxpayers averaged about $41,400 each. By comparison, these same Americans received less than 10 percent of the savings from the other Bush tax cuts, which applied primarily to wages, though that share is expected to grow in coming years.

¶The savings from the investment tax cuts are expected to be larger in subsequent years because of gains in the stock market.

The Times showed the new numbers to people on various sides of the debate over tax cuts. Stephen J. Entin, president of the Institute for Research on the Economics of Taxation, a Washington organization, and other supporters of the cuts said they did not go far enough because the more money the wealthiest had to invest, the more would go to investments that produce jobs. For investment income, Mr. Entin said, "the proper tax rate would be zero."

Opponents say the cuts are too generous to those who already have plenty. Representative Charles B. Rangel of New York, the senior Democrat on the House Ways and Means Committee, said after seeing the new figures that "these tax cuts are beyond irresponsible" when "we're in a war; we haven't fixed Social Security or Medicare; we've got record deficits."

Because of the tax cuts, even the merely rich, making hundreds of thousands of dollars a year, are falling behind the very wealthiest, particularly because another provision, the alternative minimum tax, now costs many of them thousands and even tens of thousands of dollars a year in lost deductions.

About 3.5 million taxpayers filing their returns for last year are being hit by the alternative tax. But that figure will balloon this year to at least 19 million taxpayers, making as little as about $30,000, unless Congress restores a law that limited its effects until now, according to the Tax Policy Center in Washington, a joint project of the Brookings Institution and the Urban Institute, whose estimates the White House has declared reasonable.

The tax cut analysis was based on estimates from a computer model developed by Citizens for Tax Justice, which asserts that the tax system unfairly favors the rich. The group's estimates are considered reliable by advocates on differing sides of the tax debate. The Times, which also did its own analysis, asked the group to use the model to produce additional data on the effect of the investment tax cuts on various income groups. The analyses show that more than 70 percent of the tax savings on investment income went to the top 2 percent, about 2.6 million taxpayers.

OK, the article probably falls into the suspicions confirmed category.

Entin’s assertion is the interesting comment since there is scant evidence that the wealthiest recipients of large tax cuts plow that money back into job creating investments. The article goes on to point out that it is the wealthiest who are keeping consumption afloat. Add the money that goes into financial savings and you don’t see much going into the productive investment side. Why take the risk when you can spend some and put some under the mattress for a rainy day?

Mix in large government deficits generated by the Iraq war, corporate pork barrel spending, and money to float the tax cuts and you don’t even get overall national saving.