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Tax Cuts Relative to Tax Payments

By Tom W. Bell and Glen Whitman

So this graph from Ezra Klein is making the rounds. In a nutshell, it shows that the proposed GOP tax cut (really an extension of the Bush tax cut) gives lots of money back to the very rich, whereas the Democratic tax cut (really a partial repeal of the Bush tax cut, meaning a tax increase) is not so generous with the rich.

The graph speaks for itself. Or does it? What the graph doesn?t show is how much each income group pays in taxes to begin with. The real question is how much each group is getting back relative to how much they put in.

Think of a tax cut as a kind of rebate: the government took some of your money, and now it?s giving some back. So how big is the rebate per dollar of tax paid? Using IRS data and the numbers in Klein?s graph, I?ve broken it down:

The chart shows that under both plans, the highest-income groups get a much smaller rebate per dollar, while the lowest-income groups get a much larger rebate per dollar. The difference is that the Democratic plan gives the rich almost no rebate at all -- about 1 cent per dollar -- whereas the GOP plan does give the rich a rebate of about 13 cents per dollar. Meanwhile, everyone earning less than $200K gets a rebate of at least 22 cents per dollar, with some groups getting much larger rebates (reaching as high as 73 cents per dollar for households earning $10-$20K).

The fact is that the rich pay a whole lot more in taxes than everyone else. It should be no surprise that their tax cuts are larger as well; the only way to avoid this is to give a disproportionate tax cut to people with lower incomes. For more, see this post from a few years ago.

Full post as published by Agoraphilia on August 12, 2010 (boomark / email).