Tax Cuts Offer Most for Very Rich, Study Says
By EDMUND L. ANDREWS
Published: January 8, 2007

WASHINGTON, Jan. 7 - Families earning more than $1 million a year saw their federal tax rates drop more sharply than any group in the country as a result of President Bush's tax cuts, according to a new Congressional study.

The study, by the nonpartisan Congressional Budget Office, also shows that tax rates for middle-income earners edged up in 2004, the most recent year for which data was available, while rates for people at the very top continued to decline.

Based on an exhaustive analysis of tax records and census data, the study reinforced the sense that while Mr. Bush's tax cuts reduced rates for people at every income level, they offered the biggest benefits by far to people at the very top — especially the top 1 percent of income earners.

Though tax cuts for the rich were bigger than those for other groups, the wealthiest families paid a bigger share of total taxes. That is because their incomes have climbed far more rapidly, and the gap between rich and poor has widened in the last several years.

The study offers ammunition to supporters and opponents of Mr. Bush's tax cuts, which are all but certain to touch off a battle between the president and the Democrats who just took control of Congress.

Democratic leaders have taken pains to avoid an immediate fight over the tax cuts, most of which are scheduled to expire at the end of 2010. But Democrats are looking for ways to increase revenue well before then, in part because they want to spend more on education and energy without increasing the deficit.

Economists and tax analysts have long known that the biggest dollar value of Mr. Bush's tax cuts goes to people at the very top income levels. One reason is that two of his signature measures, tax cuts on investment income and a steady reduction of estate taxes, overwhelmingly benefit the wealthiest households.

But the Congressional study offers additional insight because it incorporates information about what people paid in 2004, the first year in which taxpayers could take full advantage of the cuts on stock dividends and capital gains.

The study estimates that the effective federal income tax rate, which excludes payroll taxes for Social Security and Medicare, declined modestly for people in the middle- and lower-income categories.

Families in the middle fifth of annual earnings, who had average incomes of $56,200 in 2004, saw their average effective tax rate edge down to 2.9 percent in 2004 from 5 percent in 2000. That translated to an average tax cut of $1,180 per household, but the tax rate actually increased slightly from 2003.

Tax cuts were much deeper, and affected far more money, for families in the highest income categories. Households in the top 1 percent of earnings, which had an average income of $1.25 million, saw their effective individual tax rates drop to 19.6 percent in 2004 from 24.2 percent in 2000. The rate cut was twice as deep as for middle-income families, and it translated to an average tax cut of almost $58,000.

In its report, the Congressional Budget Office estimated that the overall effective federal tax rate edged up to 20 percent in 2004, from 19.8 percent the year before.

But even with that increase, Americans faced lower tax rates than any time since 1979. If President Bush has his way, those rates could decline even more as the estate tax on inherited wealth is gradually phased out by the start of 2010.

Mr. Bush and his Republican allies in Congress want to permanently extend that tax cut and almost all of the others that Congress passed in his first term. The cost of doing that would be more than $1 trillion over the next decade, a cost that would hit the Treasury at the same time that the spending on old-age benefits for retiring baby boomers begins to soar.

The budget office offered little commentary on its new estimates, but many of its numbers spoke for themselves.

The report shows that a comparatively small number of very wealthy households account for a very big share of total tax payments, and their share increased in the first four years after Mr. Bush's tax cuts.

The top 1 percent of income earners paid about 36.7 percent of federal income taxes and 25.3 percent of all federal taxes in 2004. The top 20 percent of income earners paid 67.1 percent of all federal taxes, up from 66.1 percent in 2000, according to the budget office.

By contrast, families in the bottom 40 percent of income earners, those with incomes below $36,300, typically paid no federal income tax and received money back from the government. That so-called negative income tax stemmed mainly from the earned-income tax credit, a program that benefits low-income parents who are employed.

Put another way: rich families were the undisputed winners from President Bush's tax cuts, but people in the bottom half of the earnings scale were not paying much in taxes anyway.

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They have made a killing

The US has spent a million dollars for every dead Iraqi - is that what they mean by value for money?

Terry Jones
Saturday January 6, 2007
The Guardian

Early this year the Bush administration is to ask Congress to approve an additional $100bn for the onerous task of making life intolerable for the Iraqis. This will bring the total spent on the White House's current obsession with war to almost $500bn - enough to have given every US citizen $1,600 each. I wonder which the voters would have gone for if given the choice: shall we (a) give every American $1,600 or (b) spend the money on bombing a country in the Middle East that doesn't use lavatory paper?

Of course, there's another thing that George Bush could have done with the money: he could have given every Iraqi $18,700. I imagine that would have reduced the threat of international terrorism somewhat. Call me old-fashioned, but I can't help thinking that giving someone $18,700 brings them round to your side more quickly than bombing the hell out of them. They could certainly buy a lot of lavatory paper with it.

In 2002 the house budget committee and the congressional budget office both guesstimated the cost of invading Iraq at approximately $50bn; $500bn seems a bit wide of the mark. What's more, with over half a million dead, it means that the world's greatest military superpower has spent a million dollars for every Iraqi killed. That can't be value for money!

So how on earth could such a vast overspend occur? After all, the US is the flagship of monetary common sense. Well, for starters, in 2003 the White House refused to allow competitive bidding for contracts in Iraq, which is odd for the champions of free enterprise. Then the White House ensured there would be no overseeing of what was spent. In the original Iraq spending bill, which earmarked the first $87bn to go down the drain, there was a provision for the general accounting office to keep a check on things, but that provision was stripped from the bill - even though the Senate had originally voted for it 97 to 0.

But what I want to know is: how do they actually spend all that money? Well the answer is: they don't. According to the website Halliburtonwatch, the Halliburton subsidiary KBR bills the US taxpayer for $50-$80 per day for labourers working for it in Iraq, but pays them only $5-$16 per day. It's the same with Halliburton. In December 2003 the US army discovered that the company had overcharged by $61m for fuel transportation and $67m for food services in Iraq.

Then there is good old-fashioned incompetence. Take the al-Fatah pipeline: KBR went through $75.7m of taxpayers' money, supposedly trying to replace a pipeline across the river Tigris that US forces had blown up. They never finished the job, but still got paid.

With all this double-dealing and incompetence, you'd expect that those responsible would have been penalised by now. But that's where the mystery deepens. Companies such as Halliburton and its subsidiaries have never had it so good. In January 2006 the Bush administration intervened in a dispute between the Pentagon and Halliburton, and agreed to pay the company $199m in disputed charges. On January 26 2006 Halliburton announced that its 2005 profits were the "best in our 86-year history". And to date KBR has received around $16bn from its contracts in Iraq.

Vice-President Dick Cheney, formerly CEO of Halliburton, has not had a bad war either. His tax returns for 2005 show that he earned $194,862 from his Halliburton stock options alone. Mind you, it's small change compared to his $36m payoff when he left the firm. Was that for his past role, or was Halliburton anticipating further services from the future vice-president of the US? Perhaps it's just as well that in 2003 the White House removed from the Iraq spending bill any provision to penalise war profiteers who defrauded US taxpayers.

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