Playing the Numbers

As he winds down his cross-country campaign swing, John Kerry has changed the subject, according to Jonathan Finer of The Washington Post. With polls showing many Americans are more concerned about the economy than they are about the quagmire in Iraq, the subject has moved to the forefront of the challenger’s message.

And the Kerry campaign is already touting today’s report by the nonpartisan Congressional Budget Office which confirms what many Democrats and others have asserted: President Bush’s tax cuts over the past three years have significantly benefited America’s wealthiest.

“According to the new report from the Congressional Budget Office (CBO), about two-thirds of the benefits from the tax cuts, enacted in 2001 and 2003, went to households in the top fifth of earnings, with an average income of $203,740,” writes Edmund L. Andrews in today’s New York Times.

The Republicans have countered that the tax reductions have produced benefits to all Americans, even those in the lowest economic brackets. Writes Andrews: “People with the bottom fifth of income, for example, averaging earnings of only $16,620, saw their effective tax rate drop to 5.2 percent from 6.7. Yet because lower- and many middle-income families had been paying very little federal income tax in the first place, those in that bottom fifth of earnings received an average tax cut of only $250.”

And to drive home the point, Andrews quotes an anonymous “House Republican aide,” who proclaims: “It doesn’t matter who you are, the report shows that you are better off now than you were before the tax cuts. It’s showing that everybody’s tax burden has gone down as a result of the tax cuts.”

(Campaign Desk wonders why, if the news is so good, the aide cannot allow himself or herself to be identified — or why Andrews would give space to an anonymous but totally partisan source solely to spin the findings and not give the other side the same opportunity. Perhaps the aide wanted to be anonymous because the claim is a bit misleading, in that Americans who pay payroll taxes or self-employment taxes, but have no income tax liability, didn’t benefit from the cuts.)

Jackie Calmes of The Wall Street Journal also writes (subscription required) about the study, and supplies a nice breakdown of the tax-cut benefits (minus any spins).

The cuts, writes Calmes, “will reduce this year’s income taxes for the richest 1 percent of taxpayers by an average of $78,460, more than 70 times the average benefit for the middle 20 percent of taxpayers, congressional analysts found.”

Calmes continues:

Using CBO’s findings, congressional Democratic staff calculated that the lowest 20 percent of taxpayers — those with total annual income in 2001 dollars of $14,900 to $34,200 — receive a tax cut of $250 on average for 2004. The next 20 percent of taxpayers, with incomes as much as $51,500, get an average tax cut of $800, and the middle fifth of taxpayers, which includes those earning as much as $75,600, receive an average $1,090 tax cut.

For the next-highest 20 percent, with income as much as $182,700, the average tax cut for 2004 is $1,770. And for the top fifth of taxpayers, whose annual income is above $182,700, the tax cut is $4,740 on average. The top 1 percent that get an average $78,460 tax cut includes taxpayers with more than $1 million in annual income.

Congressional Republicans countered that the richest 20 percent of taxpayers still will pay 63.5 percent of all income taxes for 2004, as they did in 2001. The CBO analysis doesn’t account for reductions in estate taxes.

The issue of who pays how much isn’t the entire story in the debate over taxes. As liberal Times columnist Paul Krugman writes today, the Bush tax cuts have “favored unearned income over earned income — or, if you prefer — investment returns over wages.”

Notes Krugman: “The political problem with a policy favoring investment returns over wages is that a vast majority of Americans derive their income primarily from wages, and that the bulk of investment income goes to a small elite.”

As the campaign debate now moves into the squishy topic of the economy (and the morass of tax policy), the opportunities for both sides to spin numbers and benefits will grow exponentially. Yet, as the polls (and common sense) indicate, this is an issue of tremendous importance to voters of all stripes. The need for solid — and spin-free — reporting has never been greater.

Susan Q. Stranahan

Clarification: The above post has been updated to clarify that those who pay only payroll or self-employment taxes but not income taxes would not have benefited from the tax cuts.

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Susan Q. Stranahan wrote for CJR.