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Economic News, Data and Analysis

Upper-Income Tax Cuts and Jobs

From: OMB Watch – Federal Budget – Weblog
President Bush is arguing that reducing the top marginal rate would “fuel” job growth.
The problem with using the top marginal tax rate as a tool to cut taxes on “small” businesses is that 1) it misses most small businesses – less than 4% of businesses make enough to be taxed at the top individual rate, and 2) it reduces taxes on upper income individuals regardless of the source income – thus it does not target businesses efficiently.
Cutting the top marginal tax rate is not a credible way to spur job creation. It looks like the adminstration has again fallen into the same old pattern of proposing upper-income tax cuts as the cure for all ills.

Bush Assertion on Tax Cuts Is at Odds With IRS Data (washingtonpost.com)
President Bush defended his tax cuts yesterday as economic fuel for the small-business sector in response to mounting criticism from Democratic presidential candidates that the cuts chiefly benefited the wealthiest Americans.
But the president’s contention that upper-income tax cuts primarily benefit entrepreneurs conflicts with some of the government’s own data.
[…]
Internal Revenue Service statistics cited by a Democratic senator this month show that the vast majority of small businesses do not earn nearly enough money to fall into the highest income tax bracket. According to IRS data from the 2001 tax year, 3.8 percent of the 18.2 million business tax returns filed that year reported taxable income of $200,000 or more. The top tax bracket last year kicked in at $311,950 of taxable income.
In contrast, 62 percent of business filers reported incomes of less than $50,000, putting them at most in the 15 percent tax bracket, the second lowest. Nearly 88 percent of business filers reported income of less than $100,000, keeping them comfortably below the top two tax brackets of 33 percent and 35 percent, which Kerry and Edwards propose to raise.

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