May 9, 2003

May 9, 2003 | Commentary on Taxes

A Tax Cut For The Wealthy?  That's Rich

Presidential contender Richard Gephardt recently characterized the White House's economic-growth proposal as "knee-jerk tax cuts that do nothing but pay off George Bush's wealthy campaign contributors while killing economic growth."


This has a familiar ring. Two years ago, Senate Minority Leader Thomas Daschle attracted considerable media attention when he stood alongside a brand new Lexus and alleged that the "rich" would spend their windfalls on expensive cars while the rest of us would be stuck with a muffler.


Liberal pundits and their allies on Capitol Hill say these types of things all the time. According to them, the best way to create jobs is to expand government programs such as the Medicaid health program for the poor, extend federal payments to those without jobs, and spend billions to bail out wasteful state governments that are running deficits.


Unfortunately, advocates for the sort of tax relief most likely to create millions of new jobs come up short in this latest episode of "class warfare."


For starters, who exactly are all these "wealthy campaign contributors" who would be luxuriating in the windfall from Bush-style tax relief? Are we looking at images of the idle rich who spend their days sipping Bordeaux next to their Italian tile-adorned pools?


Nope. When liberals assail "the rich" they unwittingly set themselves against millions of hard-charging entrepreneurs who manage modest, family-owned firms and workaholic two-parent families comprised of schoolteachers and middle managers who struggle to make ends meet.


Earning just $71,800 annually puts you among the wealthiest 20 percent of all Americans. According to some liberals, this means you're rich. Yet married couples who file joint returns make up 85 percent of this group.


These are the families who pay more taxes simply because they're married. The proposals now before Congress to eliminate the so-called "marriage penalty" would bestow immediate tax relief on these "rich" couples. These families also stand to benefit immediately from the proposed reduction in tax rates, from 27 to 25 percent.


But hold on, you're saying. Surely "rich" Americans include the "truly wealthy," those in the top income tax bracket who earn more than $300,000 per year. Surely they can afford to forgo a tax cut?


Well, two out of three taxpayers in the highest tax bracket (500,000 out of 750,000) are actually small businesses -- the mom-and-pop firms who comprise the engine of job growth in this country - and would realize 80 percent of the $13 billion in tax relief due to this change.


They are the proprietors of the fabled family-owned farms that so many of our liberal friends, wearing another hat and drawing from a different prepared speech, extol when they seek federal subsidies on their behalf.


They run the neighborhood restaurants, bicycle stores and flower shops you patronize. They work 60-plus hours a week and employ quite a few aspiring millionaires who hope to own something some day. They are the everyday heroes whose hard work and sacrifice should be rewarded and encouraged, not penalized by excessive taxes and lambasted by opportunistic presidential candidates eager to score cheap political points.


These Americans make our economy grow. And they're poised to do even more.


Recently, the owner of a small business in Paducah, Ky., told Commerce Secretary Donald Evans that he already had calculated the savings he would realize from an immediate drop in the top tax rate from 38 to 35 percent. Should the cut materialize, he said, he would plough the savings back into his company to buy new equipment and hire 30 additional employees.


Not buy a Lexus. Not install gold fixtures in his master bathroom. Purchase new equipment. And employ another 30 Americans.


There are thousands of small businesses just like this one, all across the country, ready to hire -- provided Congress removes some of the unnecessary impediments. In fact, research from my colleagues at The Heritage Foundation shows the legislation under review in the House of Representatives would allow these job-generators to create more than 1.2 million new jobs this year and next.


Should we shrug off a chance to spark real economic growth like that, just so tax-cut critics can score political points deriding the "rich"? Considering that the people they're talking about are likely to be you or someone you know -- individuals who might aspire to buy, say, Lexuses of their own someday -- the answer should be obvious.


Michael Franc is vice president for government relations at The Heritage Foundation (, a Washington-based public policy research institute.



About the Author

Michael Franc Distinguished Fellow
Government Studies

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