Middle Class Paying For Tax Cuts?

Two new studies suggest that the burden of paying for the Bush tax cuts will fall on America's middle class, the Washington Post reports.

The studies – by two groups that have been critical of the Bush administration's tax policies, Citizens for Tax Justice and the Tax Policy Center – conclude that middle-income taxpayers will shoulder a greater share of all federal taxes by decade's end.

Opponents have claimed the administration's tax cuts reward the rich – especially those earning over $337,000 a year – while penalizing the poor.
The White House argues, however, that lower-income Americans will also benefit from a lighter tax burden through greater tax relief for families with children, a new 10 percent tax bracket and a larger earned-income credit for lower-income married couples.

That leaves a broad cross-section of middle-income taxpayers to shoulder a heavier share of the federal tax burden. The studies find that while taxes will decline across the board, Americans with incomes between $28,000 and $337,000 will eventually be paying a higher percentage of all federal taxes than before the cuts were implemented.

"It's hard to get a lot of progressivity at the very top," R. Glenn Hubbard, the architect of the latest Bush tax cuts, tells the Post. "But," he added, "we've very much retained progressivity overall because so much money was dumped into the bottom rates."

The Citizens for Tax Justice study concluded that the bottom fifth of taxpayers, those earning less than $16,000, would see a 10 percent drop in taxes by 2010; while taxes for those earning $16,000 to $28,000 would fall 12 percent. That compares to a 15 percent decline in taxes for the top 1 percent of Americans, those earning at least $337,000.

For taxpayers in the middle – those earning between $45,000 and $337,000 – the decline would be just 7 percent.

The Tax Policy Center study concluded that the wealthiest 1 percent's share of total federal taxes would drop to 22.8 percent in 2011, from 24.3 percent today, while the lowest 40 percent would see its share of the burden drop to 2 percent, from 2.2 percent.

The burden for families earning between $22,955 and $80,903 would rise slightly, from 25.5 percent to 26.1 percent.

Treasury Department officials told the Post the two studies were slanted because they included Social Security and Medicare payroll taxes, which the Bush tax cuts did not address.

Treasury spokeswoman Pamela F. Olson said that if Social Security taxes were included, then Social Security benefits should be, too. "Then you would have a very progressive system," she said.

The Treasury's own analysis shows that all taxpayers earning less than $100,000 are paying a smaller percentage of their income in taxes than before President Bush was elected, while families earning above $100,000 paying a slightly higher percentage of federal income taxes.