Was the 2001 Tax Cut Regressive?
By David Henderson
When George W. Bush proposed a huge, regressive tax cut in 2001, Snowe, sitting at the heart of a decisive block of centrists, used her leverage to support the passage of a modestly smaller and less regressive version.
That’s false. Here’s what I wrote recently about the 2001 tax cut:
In fact, though, for all the Bush tax cuts (in 2001, 2002, and 2003) combined, the percentage reduction in taxes for upper-income households was less than the percentage reduction for lower-income households. The second-lowest quintile, for example, had its taxes cut by 17.6 percent whereas the highest quintile had its taxes cut by about 11 percent. I don’t have data for the 2001 tax cut alone, which is what [Alexander] Field’s claim is about. But because the 2002 and 2003 tax cuts were aimed disproportionately at high-income people, it follows that the 2001 cut alone had to have been even more tilted to lower-income people than the above percentages suggest.
I explained further:
Why do so many people, including Field, think differently about this important issue? My guess is that it’s because the media emphasized the absolute size of the tax cuts that higher-income people got. In a progressive tax system, with higher marginal tax rates for higher incomes, a given percentage tax cut will cut taxes of the people who pay a lot in taxes much more than it cuts taxes for people who pay only a little.
You might wonder why I can’t cite a government document showing distribution tables for the 2001 tax cut. Bruce Bartlett explains:
Unfortunately, the long, drawn-out conclusion to the 2000 election, which wasn’t resolved until the Supreme Court decided Bush v. Gore on December 12, deprived Bush of a third of his transition period. His advisers didn’t have formal access to Treasury until the transition began, which prevented them from getting revenue estimates and distribution tables on possible alternate policies.