When the Tough Get Cutting

Matthew Yglesias comments today on the Tax Policy Center’s report about the budgetary implications of Paul Ryan’s new budget. In general, it produces a budgetary hold of $5.7 trillion over a decade. However, Matthew focuses on the distributional consequences:

Of course since rich people start out with higher after-tax incomes than the middle class, that larger percentage increase in after-tax incomes expands to an enormous gap in actual dollars. The poorest twenty percent of American households would receive, on average, a $60 tax cut. The middle twenty percent would get $1,961. The top 1 percent would get $227,420. The results are so skewed that I couldn’t come up with a legible way of presenting them visually, but if you go up to the top 0.1 percent they get $1.2 million on average.

This is a great rhetorical device, but not all that substantive. It is almost surely the case that if you’re handing out tax cuts across the board, higher income people are going to benefit disproportionately, for the same reason politicians don’t go raising money in poor neighborhoods: that’s not where the money is.

Let’s take the Tax Policy Center’s brackets:

(3) The income percentile classes used in this table are based on the income distribution for the entire population and contain an equal number of people, not tax units. The breaks are (in 2012 dollars): 20% $22,008; 40% $42,597; 60% $67,608; 80% $112,412; 90% $147,742; 95% $227,595; 99% $573,930; 99.9% $3,274,341.

Now lets assume that there is political will for nothing other than an across the board tax cut, and in a compromise, the left has managed to make the cut steeply progressive, with the bottom bracket getting a 100% cut, and the top getting a 1.5% cut, with other brackets somewhere in between. This is what such a scenario would look like:

The top .01% still get double the windfall, and even the to 1% do better than the bottom 20%. Matthew’s point, of course, is that we shouldn’t cut taxes on the rich at all. I don’t agree with that; as I think we should cut everyone’s income tax to zero, by abolishing it, but not the point. The point is that no one should be surprised that percentages of small numbers are also small numbers. Now money is money, but the real losers in this scenario are the 80’s, 90’s, and 95’s.


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