Bush Tax Cuts myths: War on the Middle Class

3. The Bush Tax cuts hurt the middle class and were only a benefit to the rich

Another common criticism of the Bush Tax cuts was that they were a sort of kick back to the rich from the administration.  The US uses a progressive income tax system where the income tax you pay is determined by the last dollar you make in the year.  There are levels or brackets that determine the tax rate that an individual pays.  for example, if you make 0 to $7,000 in a year you pay only 10 percent on your income.  If you make between $7,000 and $28,000 you pay 10 percent on your first $14,000  and 15 percent on the next $13,000.  Each tax bracket is defined by these income thresholds and tax rate and they are subject to change when the tax code is amended.  This analysis focuses on the individual brackets because the married brackets follow the same patterns and the dependent deductions are too individual specific for this analysis.

The Bush Tax Cuts: Fiscal Effects on the Debt and Deficits

 2. The Tax Cuts caused the budget deficit and current national debt problem 

The second criticism of the Bush tax cuts is that they caused major budget deficits and thus greatly added to the national debt.  If this were true, from 2003 forward there would be increasing yearly deficits and greater increases in the national debt.  Like the previous analysis, the budget numbers must be normalized for population and inflation.  The population normalization is done by dividing the numbers by the total population to get the revenue and outlays per person.  The per person metrics allows analysis across years with different populations.  Inflation is normalized by using 2005 dollars for all the data.  The first portion of this analysis proved that more revenue was collected after the tax cuts than before.  That fact alone should dispel most of this myth but there is room for further analysis.

The Policy, The Myth, and The Legacy of the Bush Tax Cuts

"THE BUSH TAX CUTS"

 The policy:
Depending upon who you ask, the Bush tax cuts evoke great pride or revulsion.  The controversial tax policy of the Bush administration was passed by Congress in 2001 and took effect for the 2003 tax year.  The policy is loosely based on the Reagan supply side economic theory where lower taxes stimulates the economy which increase the tax base for the government.  Supply side economics revolves around the private sector as the major economic engine for the economy as a whole where the government holds a small but important role in enforcement of law and maintenance of infrastructure.  The theory pinpoints an economic sweet spot where the taxes are low enough to encourage economic and taxable activities but not too low where further taxation would not prevent further activity.  Economist Art Laffer created the "Laffer Curve" that depicts the visual representation of this policy.

 The theory behind the Laffer curve states that if taxes are at 0 percent, the government will collect no taxes because it will tax 0 percent of income.  If the tax rate is 100 percent, then all income will go to the government so there is no incentive to earn an income that will go directly to the government.  Somewhere in the middle is a tax rate that maximizes the tax revenue.  Most economists understand that this optimal rate is lower than 40 percent but greater than 30 percent.  The Bush Tax Cuts adjusted the income rates downward closer to 35 percent for top earners. 

Minimum Wage Myth

Everyone one should have the right to earn a livable wage, right?  No one should be stuck in a job that forces them to work in subhuman conditions for a wage that does not allow them to provide for their families.  Not raising the minimum wage will punish those who are the most disadvantaged in our society and keep people living in poverty.  These are the concerns raised over the debate to adjust the minimum wage at either the Federal or State levels.  Arguments like these are made out of pure emotion without actual data to back them up.  The debate often lacks answers to crucial questions like what effect has previous minimum wage increases had, who makes up the majority of minimum wage workers, and how do we determine to what level the minimum wage is determined?

What is the function of the minimum wage? 
The minimum wage was implemented as part of the fair standards act during the New Deal.  It's intention was to ensure that every employee no matter how unskilled or productive could earn a "decent" wage.  It was originally set at twenty-five cents when the law was past in 1938 and is currently $ 7.25.  The decent wage was originally set arbitrarily and increased infrequently as a result of cost of living and inflation demands.  The changes were rarely made in relation to actual market fluctuations in the labor market and mostly made for political gain.  Minimum wage increases are an easy way for a politician to champion a cause that endears them to a large segment of the population who can sympathize.  On the surface it seems reasonable to set a floor for the wages that a worker can earn.  The rationale came from the horror stories of underage factory workers getting paid very little for excessive amounts of work.  But what are the actual effects of minimum wage increases and is public opinion correct?