Tuesday, July 10, 2007

I love the Center on Budget and Policy Priorities

Here is part of their refutation of the claim that the 2003 tax cuts raised government income.
A recent Congressional Budget Office analysis attributes a significant share of the remaining revenue growth (the growth not due to a growing economy) to a large increase in the share of national income going to corporate profits.[5] When corporate profits increase at the expense of other forms of income, some of which are not subject to tax or are taxed at very low rates, revenues rise. In addition, new data from economists Thomas Piketty and Emmanuel Saez show that the share of the nation’s pre-tax going to the top 1 percent of households jumped dramatically between 2003 and 2005 (the latest year for which data are available). Increased income concentration tends to raise revenues because it puts more income in the hands of those who pay taxes at higher rates.

Supporters of the capital gains and dividend tax cuts cannot claim credit for the revenue growth that resulted from these developments unless they also claim credit for the developments themselves. That is, they would have to argue that the tax cuts caused the share of the nation’s income going to corporate profits and high-income households to increase — and consequently caused the share going to employee compensation and middle- and low-income households to fall. Tax-cut supporters have been notably silent on this score.

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