Krugman: Only a "Small Piece" of the Tax Cuts Were for the Rich
By David Henderson
Often over the last few years, President Obama has blamed the Bush cuts for a large part of the deficit. He’s right. But he often gave the impression that they went primarily to “the rich.” Of course, he didn’t mean the rich; he meant high-income people, which is not always the same. Many of his supporters played along and one of them was Paul Krugman. I’m not saying that Paul Krugman ever lied or even said anything untrue about this issue (although he may have), but he, like Obama, left the impression that “the rich” got most, or at least a disproportionate share, of the overall Bush tax cut.
Many critics of the Bush tax cuts actually did make the claim that the taxes of high-income people (aka incorrectly as “the rich”) fell by a higher percent than the taxes of low-income people.
Here’s what I wrote in a review of Alexander J. Field’s excellent book, A Great Leap Forward: 1930s Depression and U.S. Economic Growth, about Field’s mistaken reading of the Bush tax cuts:
Field also drops his careful methodology in addressing George W. Bush’s tax policy. Field writes that Bush’s 2001 tax cuts “allowed disproportionate reductions in taxes to upper-income households.” The author seems to imply disproportionately high, and he confirmed in an e-mail that this is what he means. 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 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.
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.
Finally, it’s nice, although a little late in the game, to see Krugman explicitly say that only “a small piece” of the Bush tax cuts was for high-income people. It’s at about the 7:05 point of this video.