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Citizen Staff
David Pittman COLUMN

Report: Bush’s tax cuts did what he said they would


The most frequently criticized provision of the Bush tax cuts was the reduction of the top federal income tax rate from 39.6 percent to 35 percent.

President Bush has said no one should pay more than 35 percent of his income in federal income taxes. He also maintains wealthy Americans receiving tax breaks will reinvest the money in their businesses, thereby creating jobs and fueling the economic recovery.

A new study by the Tax Foundation – a nonprofit, nonpartisan research and public education organization based in Washington, D.C. – supports Bush’s point of view, concluding that reductions in top marginal income tax rates not only benefited highly taxed business owners, but the U.S. economy, too.

“Because so many businesses now report their profits on individual tax forms instead of corporate forms, recent cuts in the top individual tax rates provided an extra bang for economic growth and hiring,” said Scott A. Hodge, Tax Foundation president.

The Tax Foundation report, titled “Wealthy Americans and Business Activity,” looked at business income declared by high-income taxpayers on individual tax returns, mostly on Schedules C, E and F of the 1040. Most business owners who file these schedules also pay themselves regular salaries.

“The rapid increase in business income reported on individual tax returns can be traced to laws that have persuaded businesses to organize themselves as S-Corporations, Limited Liability Corporations, sole proprietorships and partnerships, instead of as regular C-Corporations that report their profits to the IRS on corporate income tax returns,” the study said.

In fact, the report said many C-Corporations have “jumped through the administrative hoops” to convert to S-Corporations.

The study says 55 percent of all income taxes in 2004 will be paid by business owners. High-income business owners, those earning $200,000 or more, will pay most of that – 37.4 percent of all income taxes.

“Since taxpayers with business income are shouldering such a disproportionate share of the tax burden, it is only logical that tax cuts in the top marginal tax rates will disproportionately benefit them,” said the report. “Common sense tells us that tax cuts can only aid those who pay taxes in the first place.”

The study said that for business owners – particularly small-business owners – their businesses tend to be their principal form of saving, so profits tend to be reinvested back into those firms.

And just who are these rich people? The study shows they are not concentrated in just a few sectors of the economy, but are spread out in a representative sample of the economy at large.

The study found that about 13 percent of the top 1 percent of income taxpayers (those earning $317,000 and more) were associated with finance, insurance and real estate; 11 percent were health-care professionals; 9 percent were involved with the law, accounting or public relations; and 8 percent worked in the manufacture of durable goods.

About 14 percent of the top one percent of income taxpayers were retired.

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