A Sell-by Date for the Tax Breaks

October 30, 2009
Posted by Jay Livingston

Maybe you missed yesterday’s special section on Wealth and Personal Finance in the New York Times. Maybe you didn’t need to read articles like
  • “Exotic Bets to Hedge a Portfolio”
  • “Foreign Bonds Provide a Buffer . . .”
  • “ . . . Keeping the Heirs Quiet”
  • “For Equestrians, a Buyer’s Market in Horses”
Maybe you wondered who those articles were for. If so, you could have opened to page 8, to this chart, which is not to be missed, especially by those who might have thought that the benefits of the Bush tax cuts were broadly distributed and didn’t go just to the very rich.

(Click on the chart for a larger view.)

The people in that big, blue circle, that’s who those article are for. The top 1%, the folks (to use a Bushian locution) yes, the folks who take down over $ ½ million a year and more, much more, and had their taxes reduced by nearly as much, those are the folks the Times must have had in mind with this special section. (Full article by David Cay Johnston here.)

When the Bushies bestowed this largesse upon the wealthy, they had to make it look a little less devastating to the federal budget, so they wrote in an expiration date – the end of 2010. The Bushies and their friends probably expected the Republican domination of all three branches of government to continue in perpetuity, so that when the time came, the tax breaks would be extended. They also expected that the economic strategies of tax cuts and deregulation would usher in an era of permanent prosperity rather than the worst economic period since the 1930s.

But a funny thing happened on the way to Republican paradise, and it now looks as though the sun will set on these tax breaks. Nearly a decade of the government going deep into debt in order to give you fistfuls of money as though it were trick-or-treat candy is not such a bad deal. But now . . .

What’s a poor millionaire to do? Buy another horse? Another house? Hedge the portfolio? Or might the heirs be quieted more with foreign bonds? Decisions, decisions.


Joshua said...

Maybe I'm missing something, but there seems to be an obvious flaw in the graph. The size of the circle is in absolute dollars saved, not percent of total income, or percent of tax reduction. Based on that, of course the rich saved much more. Even if you take the simplest case of a flat tax, a percent reduction results in a proportionally greater absolute dollar savings as your income goes up.

Basically, the chart is saying that rich people pay more taxes. Not particularly profound. It's so misleading that I wonder whether it's actually a piece of propaganda.

It may be the case that the Bush tax cuts were disproportionately to the rich, but that would have to be based on percentages, not absolute amounts.

Jay Livingston said...

Joshua, you're absolutely right. The rich gained more in dollars because they paid more. If you think tax policy should aim towards making tax rates more towards a flat tax, no problem. But if you think that tax rates ought to be progressive, and if you are going to reduce taxes, you'd probably want to return proportionately less to the very wealthy.