Spring
Spring in North Carolina:
It's almost obscene how much opulent springiness surrounds us here in
North Carolina at every turn these days. Not that I'm complaining...
posted by Kash @ 3:42 PM |
A Tax Cut Parable
I like the parable that has been discussed by Greg Mankiw, PGL, and
Mark Thoma in recent days. I think it's actually a great way to take a
look at the Bush tax cuts, and their effect on people of different
incomes.
Based on the actual distribution of federal income taxes in the US,
and the effects of the Bush tax cuts (estimated by the CBPP, available
here), I've redone the numbers in the parable that Greg first related
to reflect reality in the US. The problem, as PGL points out, is that
in actuality the Bush tax cuts didn't lower the bill that the people
in the bar must pay down to $80; it was effectively just an agreement
to pay $80 of the $100 tab now, and pay the rest later (read Greg's
post for the original parable in its entirety).
So here's how it really happens in the bar when the Bush
administration "cuts" taxes:
The first and second men (the poorest) used to pay $0.20. Now they
pay only $0.15 (a savings of $0.05, or 23%). They must then pay an
addtional $0.16 somewhere down the road.
The third and fourth men (the next poorest) used to pay $1.25. Now
they pay only $0.90 each (an immediate savings of $0.35, or 28%),
but must pay an additional $0.46 each later.
The fifth and sixth men used to pay $4.05 each. Now they pay only
$3.25 each (an immediate savings of $0.80, or 20%), but must pay an
additional $1.00 each later.
The seventh and eighth men used to pay $8.70 each. Now they pay
only $7.10 each (an immediate savings of $1.60, or 18%), but must
pay an additional $1.90 each later.
The ninth man (the second-richest) used to pay $15.60. Now he pays
only $12.45 (an immediate savings of $3.15, or 20%), but must pay
an additional $3.10 later.
Finally, the tenth man (the richest, who had an income about ten
times that of the fifth man, and five times that of the seventh
man) used to pay $56.00. Now he pays only $45.00 (an immediate
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