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The Lost Irony in the Tax Debate

There is an uncanny irony that has emerged from the bowels of the tax fight – one that is lost in all the banal details of the pitched battle.  Democrats have fallen in love with the Bush tax cuts, which they fought so vociferously to block in 2001 and 2003.

While the Democrats are demanding that we raise taxes on the rich, they are stridently demanding that we extend the Bush tax cuts for the rest of American taxpayers (or non-taxpayers).  The irony is that Democrats spent several years during the Bush years protesting how the Bush tax cuts were nothing but handouts for the rich.  Now, they are correctly asserting that if we don’t extend the Bush tax cuts, low and middle income earners will be severely hit.  Woops!

Democrats will never have the intellectual honesty to give Bush (and Reagan) the credit for lowering taxes (and in some cases, granting negative tax liabilities) for low and middle income families, but the reality is that the Bush tax cuts made our tax code more progressive than ever.  Bush lowered rates in the middle and at the bottom, eliminated the lowest bracket, doubled the child tax credit, and fixed the marriage penalty.

Over the years, Republicans have lowered taxes substantially towards the bottom end of the income scale with every tax reform package.  In 1981, the first year Reagan was in office, only 19.6% of tax units had no tax liability.  In 2009, according to the Tax Foundation, 40.9% of tax filers paid no federal income taxes.  A number of households towards the bottom end make several thousand dollars off the tax code, as a result of the expansion of the child tax credit and the earned income credit (and Obama’s Make Work Pay Credit in 2010).

The declining tax burden on the bottom half of income earners is reflected in the increased progressivity of the tax code since Reagan.  In 1980, the top 1% paid 19% of federal income taxes.  In 2009, they paid 36.7%.  The top 5% went from paying 36.8% of the tax pie to 58.6%. The bottom 50% (mainly those near the 50% mark) paid 7% of all income taxes in 1980.  Now they are responsible for just 2.25%.

Now that those tax rates for the bottom half of income earners are slated to expire, Democrats are suddenly waking up to the fact that the Republican tax rates have sustained millions of families for over a decade.  Instead of using the impending expirations as a weapon to leverage tax hikes on the rich, Democrats ought to muster the courage to credit Bush for those tax rates in the first place.

It’s time to repudiate the lie of Bush’s tax cuts for the rich; it’s time they give Republicans credit for alleviating the income tax burden on millions of Americans.

And while almost half of households don’t incur an income tax liability, they all suffer from the regressive taxes of Democrat regulations and market distortions.  So while they thank Bush for lowering income taxes on the working class, they should start apologizing for devaluing of our dollar and implementing green energy mandates, CAFÉ standards, Obamacare, Dodd-Frank, and EPA regulations.

Cross-posted from The Madison Project

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