How Ending the Bush Tax Cuts Would Hurt the Non-Rich

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When politicians and columnists write about the Bush tax cuts as a gift to rich people, they're not telling the whole story. It's true that the tax cuts disproportionately benefit the rich, but that's partly because the rich already hand over more of their income in taxes. The 2001 and 2003 tax cuts also save the middle-quintile taxpayers about $1,000 a year -- no small change in a recession.

We know how the Bush tax cuts helped richer folks. It famously reduced the top marginal income tax rate from about 40 percent to 35 percent; slashed rates on capital gains and qualified dividends; and continued the proud tradition of patching AMT to spare upper- and upper-middle class families. But it also cut every other income tax rate by three percent and carved out a new bottom bracket at 10 percent. It doubled the child credit, reduced the marriage penalty, and expanded tax incentives for education.

How do Bush's benefits stack up across the country? Donald Marron's congressional testimony shows how:

Bush Tax I.pngBush Tax II.png

Middle-income tax cuts -- reduced rates below the 33 percent bracket, marriage penalty relief and expanded credits -- account for most of the savings for taxpayers up to the 95th percentile. Then we see dramatic color change, and in the top one percent almost all of the savings -- about $700 billion over 10 years -- come from upper-income tax cuts and cap gains.

We shouldn't talk about the Bush tax cuts like it's One Big Thing -- a single pair of scissors making one chop to the tax bracket. The 2001/03 law is a smorgasbord of measures that effects the rich and poor very differently via different measures. Rather than calling for the whole thing to be cut or extended, we should step back and think about what kind of tax system we want, and what parts of the Bush tax cut are worth preserving.
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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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