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About That Middle-Class Squeeze…

Posted by Tony Listi on March 5, 2008 

By INVESTOR’S BUSINESS DAILY | Posted Tuesday, March 04, 2008 4:20 PM PT

Democrats seem unable to stop themselves from promoting higher taxes for the wealthy and lower taxes for the poor. But if the public knew the facts, their rhetoric would have no resonance.

The poor in America pay virtually no taxes at the federal level. What taxes they do pay have been falling for decades. The total effective federal tax rate — for income, payroll and excise taxes — for the bottom 20% of U.S. households was halved from 1979 to 2005.

From 2000, the year before President Bush took office, to 2005, after his tax cuts had fully kicked in, their total effective federal tax rate fell by nearly a third.

At the other end of the scale, the total effective federal tax rate for the top quintile fell by a mere 7.3% from 1979 to 2005 and by 8.9% from 2000 to 2005. If you look at households with children, the difference is even more stark — for the top incomes, taxes have risen, while those at the bottom saw a whopping 85.7% cut.

View larger image

Don’t think that the poor’s tax burden has been passed to the average American family. The total effective federal tax rate for the middle quintile has fallen faster than the top two quintiles.

As the chart above shows, the effective tax rate for middle-class Americans has fallen since the late 1970s. While that was happening, the median after-tax household income jumped by more than a quarter.

Taxes down, incomes up. No question — we’re all doing better.

Despite this news, readily available, the two remaining Democratic presidential candidates talk as if the rich are the only group getting tax breaks, while support from Washington for the poor has fallen and the middle class is being crushed out of existence.

Last month in Austin, for instance, Sen. Barack Obama insisted during a debate that “we have to end the Bush tax cuts to the wealthy and to provide tax breaks to middle-class Americans and working Americans who need them.”

When it was Sen. Hillary Clinton’s turn, she also pulled out the class-envy card:

“We are going to rid the tax code of these loopholes and giveaways. . . . The wealthy and the well-connected have had a president the last seven years, and I think it’s time that the rest of America had a president to work for you every single day.”

Apparently the Illinois senator is omniscient, because he has claimed that “people didn’t need” the Bush tax cuts and “they weren’t even asking for them.” He has made political points with his argument that “middle-class families are getting squeezed.”

Clearly Obama sees it as his duty to make sure Washington gets a bigger cut of Americans’ wealth — as does Clinton, who famously warned, in a statement with strong Marxist overtones, that “we’re going to take things away from you on behalf of the common good.”

What more do the Democrats want? Under the Bush tax cuts, the top 1% paid 39.4% of federal income taxes in 2005, up from 37.4% in 2000 and 30.3% in 1995, when the Clinton administration was in charge and had pushed a tax hike through a Democratic Congress.

As for the bottom 50%, they paid 3.1% of federal income taxes in 2005, down from 3.9% in 2000 and 4.6% in 1995. You can see the decline in tax rates under Bush for yourself (smaller chart, above).

That Democrats are stirring jealousy from the stump is nothing new. The candidates know their audience. And they know what their audience doesn’t — that the Bush tax cuts have been good for every taxpayer in the country, not just the rich.

Further, the Democrats know that if more voters learn the truth about taxes and the economy, then their party would be in deep trouble. Better, we suppose, to keep them ignorant and agitated.

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