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Understanding Tax Cuts
In Dissent, Number One Hundred and Thirteen
by Brian S. Wise
10 June 2003

Endeavoring to explain, once again, how tax cuts work, and who should receive them.

Money is like whiskey and car keys for the federal government, and so conservatives should never tire of making the point that the federal government will collect and spend 2.3 trillion dollars next fiscal year.  If you stop to look at the number and consider everything it has come to entail, it really is the silliest thing ever: 2,300,000,000,000.  It is enough money that, had you the ability to stack it in one dollar bills, you could reach the moon, once a year.  And yet, if you have spent even 30 random minutes listening to the (still ongoing) tax debate, you have been led to believe that the federal government must spend 2.3 trillion dollars, or else the quality of American life will spiral downward into unrecognizable chaos.  Cats will be mating with dogs, Blue Hairs will starve to death, children will go without vital services, the Heavens Will Fall.
What the president wanted was 750 billion dollars in tax cuts over ten years; what he got was 350 billion and a disastrous States aid rider.  It means the government has convinced itself it can squeak by on 35 billion less than 2.3 trillion.  (Oh, however will it manage?!)  All told, the cut represents 1.5 percent of projected federal revenue over the next decade, assuming that the projected numbers will remain static, a virtual impossibility.  (Hint: Projected federal revenues never end up decreasing once collected and counted.)  The good news is that everyone paying federal income tax will get a cut.  (Huzzah, three cheers and so forth.)  The bad news is, not everyone pays federal income tax.
Immediately came the complaint that someone making 10,000 dollars per year will not benefit from the plan, which sent the Congress to humming.  You cannot not give people a federal income tax rebate when the national motto has settled into “Me, Too!,” and so their checks, refunds for taxes they have not paid, will be delivered this summer.  (Surely the president will sign the thing; his veto stamp has collected an inch of dust, and he does not possess the type of political courage that says no to this sort of vote buying.)  10,000 Dollar a Year Man simply cannot be excluded from the grand frivolity of rebate checks, for goodness sake.
Comes the question: If someone works part time at McDonalds (McDonalds always seems to be the popular workplace for these hypothetical people) and earns 10,000 dollars, why should he not get a federal income tax refund in the Bush plan?  Because of old math; he does not actually pay any federal income tax.  By the time you factor in his yearly federal refund with its earned income and child credits (and shame on 10,000 Dollar a Year Man if he has children and only works part time at McDonalds), not only is he not paying federal income tax, he is coming out ahead.  And even this fails to factor in whatever ancillary aid he may receive over the course of the year from, for example, food stamps and Medicare.  You cannot (okay, should not) give tax refunds to people who pay no taxes.  There is no sense in it.  Luckily, no one ever claimed the tax code worked sensibly.
Mort Kondracke was among the very first to say, But 10,000 Dollar a Year Man does pay taxes, Social Security is one of them.  Well sure, but Social Security is a “set-aside benefit” one collects later in life (and this is assuming rather brazenly that the program will still exist later on in his life, or else it was all leeched away for nothing), and even then he has received every penny he put into the program within the first three years or so.  After that, it becomes welfare for the aged, in that incoming Social Security taxes are not actually collected and “locked away” for future distribution, but are used current day to pay the benefits of those currently on the program, at a rate of something like 4 taxpayers to 1 Blue Hair.  You can easily see why the program will fail one day.  (I would opt out of the godforsaken thing if only I knew how.)
And so we resort to the familiar old argument, that tax cuts (as long as they come from Republican minds) exist solely for the benefit of their buddies, The Rich.  (There are apparently no rich Democrats who could benefit.)  Of course they do.  Any fair tax cut would.  The Rich carry the vast majority of the federal tax bill: The top one percent paying 37.4 percent of the burden; the top five percent paying 56.5 percent of the burden; the top ten percent paying 67.3 percent of the burden … and it goes on like this until you get to the point where the top 50 percent of American wage earners pay over 96 percent of the total federal income tax burden.  There are things holding down the poor, but The Rich is not one of them.

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