Tuesday, October 12, 2004

Bush tax cuts not big enough, says Nobel Laureate for Economics

It's been my experience that reporters and political candidates have at best a tenuous grasp of economic matters. Thomas Sowell, one of the smartest and best-educated people on this planet, has expounded on this theme at length here, and even a casual examination of economic news stories will show you that most reporters have a lot to learn about financial matters, and little desire to do that learning. And others who should know better, like Paul Krugman of the New York Times, lie consistently about US economics and the effect of the Bush presidency thereupon.

So when I saw the article linked in the title of this post, I was kind of stunned. On one hand, anything W does must be an evil plan to enrich his unbelievably rich friends. But rigorous analysis of the Bush tax cuts and their effects tend to produce columns like this, in which Club for Growth President Stephen Moore writes about the Kerry campaign's wacky interpretation of the new Congressional Budget Office study:

"One of the inconvenient facts for the foes of the Bush tax cuts is that the percentage of total taxes paid by the rich rose after the economic stimulus plan was put into effect. This consequence of the Bush tax cuts is highly damaging to the case by the Bush-haters that his tax cuts disproportionately benefit Halliburton executives and Bill Gates. Moreover, the Bush tax cuts took some 2 million low-income taxpayers off the tax roles entirely, so it’s hard to argue that working families didn’t get a financial benefit. . . .

"What the CBO report did conclude was that the total tax share by the richest 1 percent declined modestly from 2001 to 2004. But that wasn’t because of the tax cut. It was because of the recession. When the economy contracts and incomes fall as they did in 2001 and 2002, tax payments by the wealthy fall the fastest. This is because of the progressive rate structure of the income tax. In other words, if everyone’s income falls by 10 percent, the overall percentage of taxes paid by the wealthy falls, because they pay a higher marginal tax rate.

"What this means is that the best way to get the rich to pay more taxes is to incentivize their incomes to rise. For every extra dollar the rich person earns, about 30 to 40 cents goes into the government coffers. And since the Bush tax cuts have helped put the economy back on track, as evidenced by the 4.5 percent real growth rate of the economy since May 2003, the share of taxes paid by the rich has started to rise again."

My point here is that economics is one seriously difficult issue to get right, and by far the easiest to warp to one's political will. If you have as little understanding of economic affairs as most of us have, do yourself and the rest of us a favor and start reading Thomas Sowell's fantastic columns and his excellent books.

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