Why are we so willing to repeat history's mistakes?

In the August 20, 2010 Salon editorial "
Why are we so willing to repeat history's mistakes?," David Sirota suggests that the pursuit of money and devotion to ideology cause people to overlook important lessons from history:

Out of all the famous quotations, few better describe this eerily familiar time than those attributed to George Santayana and Yogi Berra. The former, a philosopher, warned that "those who cannot remember the past are condemned to repeat it." The latter, a baseball player, stumbled into prophecy by declaring, "It's déjà vu all over again."

As movies give us bad remakes of already bad productions (hello, "Predators"), television resuscitates ancient clowns (howdy, Dee Snider) and music revives pure schlock (I'm looking at you, Devo), we are now surrounded by the obvious mistakes of yesteryear. And it might be funny -- it might be downright hilarious -- if only this cycle didn't infect the deadly serious stuff.

Vietnam showed us the perils of occupation, then the Iraq war showed us the same thing -- and yet now, we are somehow doing it all over again in Afghanistan. The Great Depression underscored the downsides of laissez-faire economics, the Great Recession highlighted the same danger -- and yet the new financial "reform" bill leaves that laissez-faire attitude largely intact. Ronald Reagan proved the failure of trickle-down tax cuts to spread prosperity before George W. Bush proved the same thing -- and yet now, in a recession, Congress is considering more tax cuts all over again.

These are but a few examples of mistakes being repeated ad infinitum. In a Yogi Berra country, the jarring lessons of history are remembered as mere flickers of déjà vu -- if they are remembered at all. Most often, we forget completely, seeing in George Santayana's refrain not a dark warning, but a cheery celebration. And the logical question is: Why? Why have we become so dismissive of history's lessons and therefore so willing to repeat history's mistakes?

Some of it is the modern information miasma. Though the Internet makes eons of history instantly available, the 24-7, moment-to-moment typhoon of cable screamfests, blogs, tweets, e-mail alerts and "breaking news" graphics makes last week's news feel old, and last month's news feel positively paleolithic. Add to this reportage that is increasingly presented with zero context, and it's clear that journalism is sowing mass senility.

Politicians also make significant contributions to the problem. With the age of the permanent campaign intensifying and the era of the long-term electoral majority ending, both parties deliberately focus only on the very recent past -- and obscure the larger historical record. From the national debt to poverty to the downsides of American empire, Republicans tell us it's all the fault of Democrats' two-year-old reign, while Democrats blame it on Bush's eight-year presidency. This, even though these emergencies developed over decades.

And then, of course, there is ideology.

With the present so radically departing from our past, history has become a damning package of inconvenient truths -- and those truths are often shunned because they threaten today's most powerful ideological interests.

This is why in the debates over war, economics and taxes, we aren't urged to consider past conflicts; we aren't encouraged to remember that America experienced its most storied growth under the New Deal's aggressive financial regulation; and we aren't told that wages and job growth expanded in the mid-20th century with a top income tax bracket above 70 percent. We aren't reminded of these facts because they threaten the defense industry, Wall Street and high-income taxpayers, respectively -- and those forces exert enormous influence over our political discourse, whether through media sponsorship, political campaign contributions or lobbying.

No matter the issue, this axiom is the same: When money has a vested interest in burying history, history is inevitably buried, ultimately leading us from Santayana and Berra's aphorisms to Albert Einstein's definition of insanity: doing the same things over and over again and somehow expecting different results.

Increase in Federal Government Salaries due to Policies Adopted Under Bush

In the December 10, 2009 USA Today article "For feds, more get 6-figure salaries," Dennis Cauchon reports that the recently reported increase in the pay of federal government workers was caused primarily by policies approved by Congress under President George W. Bush's administration.

The number of federal workers earning six-figure salaries has exploded during the recession, according to a USA TODAY analysis of federal salary data.
Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession's first 18 months — and that's before overtime pay and bonuses are counted.

Federal workers are enjoying an extraordinary boom time — in pay and hiring — during a recession that has cost 7.3 million jobs in the private sector.

The highest-paid federal employees are doing best of all on salary increases. Defense Department civilian employees earning $150,000 or more increased from 1,868 in December 2007 to 10,100 in June 2009, the most recent figure available.

When the recession started, the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000.

The trend to six-figure salaries is occurring throughout the federal government, in agencies big and small, high-tech and low-tech. The primary cause: substantial pay raises and new salary rules.

"There's no way to justify this to the American people. It's ridiculous," says Rep. Jason Chaffetz, R-Utah, a first-term lawmaker who is on the House's federal workforce subcommittee.

Jessica Klement, government affairs director for the Federal Managers Association, says the federal workforce is highly paid because the government employs skilled people such as scientists, physicians and lawyers. She says federal employees make 26% less than private workers for comparable jobs.

USA TODAY analyzed the Office of Personnel Management's database that tracks salaries of more than 2 million federal workers. Excluded from OPM's data: the White House, Congress, the Postal Service, intelligence agencies and uniformed military personnel.

The growth in six-figure salaries has pushed the average federal worker's pay to $71,206, compared with $40,331 in the private sector.

Key reasons for the boom in six-figure salaries:

• Pay hikes. Then-president Bush recommended — and Congress approved — across-the-board raises of 3% in January 2008 and 3.9% in January 2009. President Obama has recommended 2% pay raises in January 2010, the smallest since 1975. Most federal workers also get longevity pay hikes — called steps — that average 1.5% per year.

•New pay system. Congress created a new National Security Pay Scale for the Defense Department to reward merit, in addition to the across-the-board increases. The merit raises, which started in January 2008, were larger than expected and rewarded high-ranking employees. In October, Congress voted to end the new pay scale by 2012.

• Paycaps eased. Many top civil servants are prohibited from making more than an agency's leader. But if Congress lifts the boss' salary, others get raises, too. When the Federal Aviation Administration chief's salary rose, nearly 1,700 employees' had their salaries lifted above $170,000, too.

Bush and the People's Money

Bush and the People's Money

BALLOT BOX
Bush and the People's Money
Jacob Weisberg
Posted Thursday, March 1, 2001, at 6:41 PM ET
George W. Bush has an argument that he thinks clinches the case for his $2.1 trillion tax cut, or as he calls it, his $1.6 trillion tax cut. The argument is the budget surplus is "the people's money." The federal government is taking in more than it needs. So it should give the extra cash back to the people who pay the taxes.

"This surplus is not the government's money," he said in a characteristic line yesterday in Council Bluffs, Iowa. "It's the people's money. And I believe we ought to listen to the people of America and share that money with the people who pay the bills." This is only one example of dozens of similar constructs. In his budget message to Congress, Bush said he was merely demanding a "refund" on behalf of taxpayers.

Democrats are having some trouble coming up with a snappy comeback to this bit of demagoguery. They don't want to argue with Bush too directly lest they lend credence to the Republican calumny that they think all money belongs to the government. Liberals are desperately afraid to offer an answer that smacks of the view that Bush claims they hold, which is that the surplus is really the government's money.

Opponents of the Bush tax cut might be able to respond more effectively if they focused on the grammatical sleight of hand implicit in his comments. The president invariably refers to the budget surplus in the first- or second-person plural possessive--it's "our money" or "your money." But he tends to describe the deficit and other public obligations in the third-person singular or plural. Washington--or merely "they"--will spend all our hard-earned money if "we" don't stop them.

But who is this "they" Bush keeps talking about? It's none other than you, the people, of course. Bush is fully capable of acknowledging this on other occasions, such as when he points out that the White House is "your" house, not his house. But for apparent reasons, he tends not to use the first- or the second-person formulation when he's talking about the national debt or the cost of his missile defense system. He never notes that it's the people's multitrillion dollar debt or military hardware that you need to buy yourself in coming years. If he did, you might wonder whether it made sense to take back the money you're going to need to pay for that stuff.

To argue with Bush, Democrats don't need to make a case that the surplus isn't "your" money. They need to explain that to whatever extent you think of the surplus as your money, you should also think of the government's obligations and undertakings as yours as well. If the surplus belongs to you, so does the national debt. It's that big line of revolving credit you and a couple of hundred million other people began drawing down in the 1980s. Similarly, the most pressing demands for increases in government spending, such as increases in military salaries, or the demand for prescription drugs for the elderly, or money to pay for educational testing in every year of grade schools, are the big purchases you're planning on making in the next few years. The long-term obligations of Social Security and Medicare are your long-term liabilities.

In addition to questioning Bush's numbers, Democrats might do well to extend his rhetorically effective personalization of public finance. Of course it's your money, they could say. Unfortunately, you've already spent most of it.

Jacob Weisberg is chairman and editor-in-chief of the Slate Group and author of The Bush Tragedy. Follow him at http://twitter.com/jacobwe.
Article URL: http://www.slate.com/id/1007179/

Burdening Future Generations

An editorial cartoon by Gary Varvel appeared on the Jacksonville Observer website on June 19, 2009. It depicts future taxpayers being burdened by a big government. I agree with the cartoon with a few modifications. The big government ship also should include the wars in Iraq and Afghanistan started by President George W. Bush, the fiscally irresponsible but popular prescription drug benefit pushed through by the Republican-controlled Congress in 2003, and the thousands of other government programs. And instead of just Barack Obama on the ship's bow, it also should include Ronald Reagan, George W. Bush, and most of the other politicians in Washington since 1981. That is when our culture of fiscal irresponsibility was established under the disguise of supply-side economic theory. See the "U.S. Public Debt Since 1940 - Adjusted for Inflation." Baby Boomers have been burdening future generations for decades.

Obama Calls for Increased Regulation of Financial Markets

There is a general consensus that insufficient regulation was a significant cause of the current economic recession. Even President George W. Bush agrees. President Barack Obama has responded by proposing increased regulation of financial markets. According to a June 16, 2009 Associated Press story by Anne Flaherty and Jim Kuhnhenn:

WASHINGTON – Setting up a certain fight with big business, President Barack Obama is proposing a new regulatory agency to police lenders and protect consumers in credit, savings and other banking transactions. The consumer agency and a newly empowered Federal Reserve will be two of the central elements of a broad overhaul of the financial regulatory system that the president will announce on Wednesday, officials said.

Already the nation's central bank, the Federal Reserve would supervise large financial institutions that are considered so big that their failure could undermine America's economy, according to the administration proposal.

But even as the Fed gains new powers, Obama also would transfer some banking authority that now rests with the Federal Reserve and the Treasury Department to the new consumer agency — the Consumer Financial Protection Agency.

"There is going to be streamlining, consolidation and additional overlap so that you don't find people falling through the gaps, whether it's the consumer protection side, the investor protection side, the systemic risk that we need to make sure is avoided," Obama said Tuesday.

The expanded Fed role and the new consumer regulator are likely to be the two main political flash points in the administration's proposal. Many bankers oppose a new consumer protection regulator and many lawmakers in Congress worry the Fed could turn into a too-powerful and independent financial overseer. Friction over those points could slow any major overhaul of banking and market regulations.

In addition to having the Federal Reserve supervise "systemically significant" institutions, Obama will recommend a council of regulators, which would include the Fed, to monitor risk throughout the broader financial system.

The arrangement is designed to prevent any more crashes like those that felled AIG and Lehman Brothers.

In conjunction with the Fed's authority over large financial institutions and the new consumer agency, Obama will also propose:
• Requiring higher capital levels at financial institutions to avoid over-leveraging.
• Eliminating the Office of Thrift Supervision, which oversees savings institutions, and creating a new national bank regulator for all federally chartered banks.
• Additional protections for investors by requiring greater disclosure by hedge funds as well as regulations of credit default swaps and over-the-counter derivatives that previously operated outside of government oversight.
• Requiring brokers and originators of asset-backed securities to retain a 5 percent stake in the securities.
• A system for the orderly disposition of any troubled large interconnected firms whose failure poses a risk to the entire financial system, such as AIG.

Obama's plan does not attempt major consolidation of regulatory agencies and does not inject itself in an ongoing debate over whether to bring some insurance companies under federal oversight.

Asked on CNBC whether the plan stopped short out of political concerns, the Obama said: "We want to get this thing passed. We think speed is important ... but we don't want to tilt at windmills. ... We want to get the best regulatory system in place."

Obama's decision to create a consumer agency comes amid criticism that mortgage lenders and credit card companies have taken advantage of unwitting customers and saddled them with debt. The financial crisis was precipitated in part by the preponderance of securities backed by mortgages that went sour when the housing market collapsed.

Treasury spokesman Andrew Williams said lax consumer protections contributed to the financial crisis and that the recession revealed even more weaknesses in consumer protections across the spectrum of financial markets. The new agency, he said, will "help ensure that consumers have the protection and the representation they deserve."

The new regulator would have the power to impose fines and allow states to pass laws that are stricter than the federal standards — an approach favored by consumer advocates. Consumer protections are now spread among various state and federal authorities, including the Fed, the Securities and Exchange Commission, the Federal Trade Commission and banking regulators.

"Tremendous problems could have been avoided had such an agency weighed in against some of the abusive practices that Congress acted on only recently," said Travis Plunkett, legislative director of the Consumer Federation of America, citing excessive bank fees and misleading practices.

But business leaders made their opposition clear.

David Hirschmann, president and CEO of the U.S. Chamber of Commerce's Center for Capital Markets, said the chamber will oppose a standalone agency "that cannibalizes regulatory expertise, adding yet another regulatory layer."

The administration will also have to use its political skills to strengthen the Fed. While Democrats generally agree with a need for regulatory changes, many oppose relying too heavily on the Fed.

They say its status as a politically independent organization would make it difficult to keep the newly empowered organization in check.

"What happens if the representatives of the people and the president want a certain action and it's not taken?" asked Rep. Paul Kanjorski of Pennsylvania, a senior Democrat on the House Financial Services Committee.

"You can't fire the chairman of the Federal Reserve," Kanjorski said.

Likewise, Sen. Christopher Dodd, chairman of the Banking Committee, opposes adding new tasks to the Fed. In private deliberations with the administration, Dodd has advocated an alternative plan to strip the Fed of its regulatory role entirely and create a new consolidated bank regulator that would assume the roles that the Fed and Federal Deposit Insurance Corp. now play in helping regulate state-chartered banks.

Under this scenario, the Fed would focus on its existing mission as the nation's central bank — setting monetary policy and acting as a "lender of last resort."

Dodd, however, is a strong proponent of a consumer protection agency and is likely to champion that component of Obama's plan.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, has not taken a position on the administration's plan to bolster the powers of the Fed. A spokesman said Frank supports the idea of monitoring risk across the financial system.

In a staff document circulated last week, House Republicans on the committee argued that expanding the Fed's responsibilities and increasing government spending pose "a far more significant source of 'systemic risk' to our nation's economy than the failure of any specific financial institution."

See also "Increased Regulation of Financial Markets."

Reagan wouldn't recognize this GOP

In a January 24, 2009 editorial in the Los Angeles Times, former Republican Congressman Mickey Edwards argues:

In my mind's eye, I can see Ronald Reagan, wearing wings and a Stetson, perched on a cloud and watching all the goings-on down here in his old earthly home. Laughing, rolling his eyes and whacking his forehead over the absurdities he sees, he's watching his old political party as it twists itself into ever more complex knots, punctuated only by pauses to invoke the Gipper's name. It's been said that God would be amazed by what his followers ascribe to him; believe me, Reagan would be similarly amazed by what his most fervent admirers cite in their desire to be seen as true-blue Reaganites.

On the premise that simple is best, many Republicans have reduced their operating philosophy to two essentials: First, government is bad (it's "the problem"); second, big government is the worst and small government is better (although because government itself is bad, it may be assumed that small government is only marginally preferable). This is all errant nonsense. It is wrong in every conceivable way and violative of the Constitution, American exceptionalism, freedom, conservatism, Reaganism and common sense.

In America, government is ... us. What is "exceptional" about America is the depth of its commitment to the principle of self-government; we elect the government, we replace it or its members when they displease us, and by our threats or support, we help steer what government does.

A shocker: The Constitution, which we love for the limits it places on government power, not only constrains government, it empowers it. Limited government is not no government. And limited government is not "small" government. Simply building roads, maintaining a military, operating courts, delivering the mail and doing other things specifically mandated by the Constitution for America's 300 million people make it impossible to keep government "small." It is boundaries that protect freedom. Small governments can be oppressive, and large ones can diminish freedoms. It is the boundaries, not the numbers, that matter.

What would Reagan think of this? Wasn't it he who warned that government is the problem? Well, permit me. I directed the joint House-Senate policy advisory committees for the Reagan presidential campaign. I was part of his congressional steering committee. I sat with him in his hotel room in Manchester, N.H., the night he won that state's all-important primary. I knew him before he was governor of California and before I was a member of Congress. Let me introduce you to Ronald Reagan.

Reagan, who spent 16 years in government, actually said this:

"In the present crisis," referring specifically to the high taxes and high levels of federal spending that had marked the Carter administration, "government is not the solution to our problem; government is the problem." He then went on to say: "Now, so there will be no misunderstanding, it's not my intention to do away with government. It is rather to make it work." Government, he said, "must provide opportunity." He was not rejecting government, he was calling -- as Barack Obama did Tuesday -- for better management of government, for wiser decisions.

This is the difference between ideological advocacy and holding public office: Having accepted partial responsibility for the nation's well-being, one assumes an obligation that goes beyond bumper-sticker slogans. Certitude is the enemy of wisdom, and in office, it is wisdom, not certitude, that is required.

How, for example, should conservatives react to stimulus and bailout proposals in the face of an economic meltdown? The wall between government and the private sector is an essential feature of our democracy. At the same time, if there is a dominant identifier of conservatism -- political, social, psychological -- it is prudence.

If proposals seem unworkable or unwise (if they do not contain provisions for taxpayers to recoup their investment; if they do not allow for taxpayers, as de facto shareholders, to insist on sound management practices; if they would allow government officials to make production and pricing decisions), conservatives have a responsibility to resist. But they also have an obligation to propose alternative solutions. It is government's job -- Reagan again -- to provide opportunity and foster productivity. With the nation in financial collapse, nothing is more imprudent -- more antithetical to true conservatism -- than to do nothing.

The Republican Party that is in such disrepute today is not the party of Reagan. It is the party of Rush Limbaugh, of Ann Coulter, of Newt Gingrich, of George W. Bush, of Karl Rove. It is not a conservative party, it is a party built on the blind and narrow pursuit of power.

Not too long ago, conservatives were thought of as the locus of creative thought. Conservative think tanks (full disclosure: I was one of the three founding trustees of the Heritage Foundation) were thought of as cutting-edge, offering conservative solutions to national problems. By the 2008 elections, the very idea of ideas had been rejected. One who listened to Barry Goldwater's speeches in the mid-'60s, or to Reagan's in the '80s, might have been struck by their philosophical tone, their proposed (even if hotly contested) reformulation of the proper relationship between state and citizen. Last year's presidential campaign, on the other hand, saw the emergence of a Republican Party that was anti-intellectual, nativist, populist (in populism's worst sense) and prepared to send Joe the Plumber to Washington to manage the nation's public affairs.

American conservatism has always had the problem of being misnamed. It is, at root, the political twin to classical European liberalism, a freedoms-based belief in limiting the power of government to intrude on the liberties of the people. It is the opposite of European conservatism (which Winston Churchill referred to as reverence for king and church); it is rather the heir to John Locke and James Madison, and a belief that the people should be the masters of their government, not the reverse (a concept largely turned on its head by the George W. Bush presidency).

Over the last several years, conservatives have turned themselves inside out: They have come to worship small government and have turned their backs on limited government. They have turned to a politics of exclusion, division and nastiness. Today, they wonder what went wrong, why Americans have turned on them, why they lose, or barely win, even in places such as Indiana, Virginia and North Carolina.

And, watching, I suspect Ronald Reagan is smacking himself on the forehead, rolling his eyes and wondering who in the world these clowns are who want so desperately to wrap themselves in his cloak.

Mickey Edwards is a former U.S. congressman, a lecturer at Princeton's Woodrow Wilson School and the author of "Reclaiming Conservatism."

...

The Obamas´ `Date Night´ Trip to New York at Taxpayers´ Expense

Was the May 30, 2009 personal trip to New York by the Obamas an example of lavish liberal excess? A June 1, 2009 article in Media Matters for America suggests it is normal for taxpayers to fund expenses such as this. Where was the outrage for George W. Bush´s taxpayer funded 77 trips to his Crawford, Texas ranch?

Please do not misunderstand me. I am all in favor of reducing wasteful spending, whether with public or private funds. But criticizing the Obamas for this trip without having similarly scrutinized the Bushes strikes me as petty, partisan bickering. The purchase of the official George W. Bush State China Service, which consists of 320 14-piece place settings, seems to be a much bigger extravagance. And even though it was bought with privately raised money through the White House Historical Association Acquisition Trust, I have a hard time believing that was the the best use of $492,798.

President Bush blames insufficient regulation for economic downturn

In a May 28, 2009 speech to The Economic Club of Southwestern Michigan at Lake Michigan College, President George W. Bush blamed the current economic recession on insufficient regulation of financial markets:

He talked about the economy, blaming "a lack of responsible regulation" in the lending industry for the recession and said that the Federal National Mortgage Association, known as Fannie Mae, and the Federal Home Loan Mortgage Corp., or Freddie Mac, shouldn't have engaged in certain financial practices.

As mentioned in an earlier post, markets are amazing. Yet, markets are not perfect. Most economists believe it is appropriate to regulate markets to improve their social outcomes. President Bush seems to agree. Despite his claims to the contrary, he is not a supporter of free markets, which are by definition free of government regulation and interference.

U.S. Public Debt Since 1940 - Adjusted for Inflation

Here is the U.S. public debt since 1940 adjusted for inflation:

Adjusting the public debt for inflation provides a good account of federal government borrowing. The public debt increased in the 1940s to finance World War II. The public debt remained fairly constant from the late 1940s through 1981. This means the U.S. was reasonably responsible with its finances, collecting sufficient revenues to pay for government services. There is a slight increase in the 1970s. With the exception of a few years in the late 1990s, the U.S. government has increased its debt every year since 1981. Revenues have been insufficient to cover expenditures because government revenues have been reduced by tax cuts, but government spending has continued to increase. Most analysts attribute the reduction in the public debt in the late 1990s to the Congressional adoption of pay-as-you-go (PAYGO) rules. PAYGO required increases in discretionary spending to be accompanied by either tax increases or equivalent reductions in other government spending. After the election of President George W. Bush in 2000, the PAYGO rules were allowed to lapse in the House of Representatives and watered down in the Senate to facilitate the passage of tax cuts and the Medicare prescription drug plan, which former U.S. Comptroller General David Walker called "...probably the most fiscally irresponsible piece of legislation since the 1960s... because we promise way more than we can afford to keep." There was a subsequent dramatic increase in the U.S. public debt.

See also the "U.S. Public Debt Since 1940" and "U.S. Public Debt as a Percentage of Gross Domestic Product (GDP)".

Tax Cuts Offer Most for Very Rich, Study Says

The January 7, 2007 New York Times article "Tax Cuts Offer Most for Very Rich, Study Says" by Edmund L. Andrews reports on a Congressional study that concludes the Bush tax cuts "offered the biggest benefits by far to people at the very top — especially the top 1 percent of income earners." The article says:

Families earning more than $1 million a year saw their federal tax rates drop more sharply than any group in the country as a result of President Bush’s tax cuts, according to a new Congressional study.

The study, by the nonpartisan Congressional Budget Office, also shows that tax rates for middle-income earners edged up in 2004, the most recent year for which data was available, while rates for people at the very top continued to decline.

Based on an exhaustive analysis of tax records and census data, the study reinforced the sense that while Mr. Bush’s tax cuts reduced rates for people at every income level, they offered the biggest benefits by far to people at the very top — especially the top 1 percent of income earners.

Though tax cuts for the rich were bigger than those for other groups, the wealthiest families paid a bigger share of total taxes. That is because their incomes have climbed far more rapidly, and the gap between rich and poor has widened in the last several years.

The study offers ammunition to supporters and opponents of Mr. Bush’s tax cuts, which are all but certain to touch off a battle between the president and the Democrats who just took control of Congress.

Democratic leaders have taken pains to avoid an immediate fight over the tax cuts, most of which are scheduled to expire at the end of 2010. But Democrats are looking for ways to increase revenue well before then, in part because they want to spend more on education and energy without increasing the deficit.

Economists and tax analysts have long known that the biggest dollar value of Mr. Bush’s tax cuts goes to people at the very top income levels. One reason is that two of his signature measures, tax cuts on investment income and a steady reduction of estate taxes, overwhelmingly benefit the wealthiest households.

But the Congressional study offers additional insight because it incorporates information about what people paid in 2004, the first year in which taxpayers could take full advantage of the cuts on stock dividends and capital gains.

The study estimates that the effective federal income tax rate, which excludes payroll taxes for Social Security and Medicare, declined modestly for people in the middle- and lower-income categories.

Families in the middle fifth of annual earnings, who had average incomes of $56,200 in 2004, saw their average effective tax rate edge down to 2.9 percent in 2004 from 5 percent in 2000. That translated to an average tax cut of $1,180 per household, but the tax rate actually increased slightly from 2003.

Tax cuts were much deeper, and affected far more money, for families in the highest income categories. Households in the top 1 percent of earnings, which had an average income of $1.25 million, saw their effective individual tax rates drop to 19.6 percent in 2004 from 24.2 percent in 2000. The rate cut was twice as deep as for middle-income families, and it translated to an average tax cut of almost $58,000.

In its report, the Congressional Budget Office estimated that the overall effective federal tax rate edged up to 20 percent in 2004, from 19.8 percent the year before.

But even with that increase, Americans faced lower tax rates than any time since 1979. If President Bush has his way, those rates could decline even more as the estate tax on inherited wealth is gradually phased out by the start of 2010.

Mr. Bush and his Republican allies in Congress want to permanently extend that tax cut and almost all of the others that Congress passed in his first term. The cost of doing that would be more than $1 trillion over the next decade, a cost that would hit the Treasury at the same time that the spending on old-age benefits for retiring baby boomers begins to soar.

The budget office offered little commentary on its new estimates, but many of its numbers spoke for themselves.

The report shows that a comparatively small number of very wealthy households account for a very big share of total tax payments, and their share increased in the first four years after Mr. Bush’s tax cuts.

The top 1 percent of income earners paid about 36.7 percent of federal income taxes and 25.3 percent of all federal taxes in 2004. The top 20 percent of income earners paid 67.1 percent of all federal taxes, up from 66.1 percent in 2000, according to the budget office.

By contrast, families in the bottom 40 percent of income earners, those with incomes below $36,300, typically paid no federal income tax and received money back from the government. That so-called negative income tax stemmed mainly from the earned-income tax credit, a program that benefits low-income parents who are employed.

Put another way: rich families were the undisputed winners from President Bush’s tax cuts, but people in the bottom half of the earnings scale were not paying much in taxes anyway.

The Primary Beneficiaries of the Bush Tax Cuts are the Wealthy

FactCheck.org straightens out some of the distortions in discussions about the beneficiaries of the 2003 Bush tax cuts:

Here We Go Again: Bush Exaggerates Tax Cuts
February 20, 2004
The President can't keep his figures straight. And most people are getting less than he implies.

Summary
President Bush stumbled Feb. 19, saying the average tax cut is $1,089. The White House corrected that figure to $1,586. But the fact is that most Americans won't see anywhere near either of those amounts.
As we've said before when disputing equally misleading lowball figures given by Howard Dean, half of all individuals and families will get less than $470, and half will get more. The “average” is misleading because it is inflated by very large cuts given to a relative few at the top.

Analysis
Now that the general election campaign is nearing, President Bush has resumed a sales pitch for the tax cuts he's signed. But he persists in making some misleading claims.

At a 24-minute appearance in the White House complex on Feb. 19, the President wrongly stated that "everybody who pays taxes" is getting a cut, which is not true:

Bush: We cut the taxes on everybody who pays taxes. I don't think it makes sense for tax-cutters to say, okay, you win, and you lose. My attitude was, if you pay taxes, you ought to get relief. And we cut all taxes,

In fact, all taxes were not cut and millions who pay only federal payroll taxes got no benefit from Bush's cuts.

It is true that everybody who paid federal income taxes is getting a cut. But according to the nonpartisan Tax Policy Center, 35.6 million individuals and families got zero benefit from the Bush cuts because their income was so low they were not paying federal income taxes before the cuts. This number includes 15.1 million workers who are paying federal payroll taxes for Social Security and Medicare. That's 15 million "taxpayers" who were left out.

The President also bobbled the numbers when describing the average size of the cut. Here's the official White House transcript of what he said, which was wrong, along with the footnotes inserted later by the White House staff to correct the record:

Bush: The tax relief we passed, 11 million* taxpayers this year will save $1,086* off their taxes. . . .

(* 111 million taxpayers will save, on average, $1,586 off their taxes.)

The $1,586 figure is indeed an accurate statement of the average cut received by those who are getting a cut, according to the Treasury Department. However, it is far from typical.

For one thing, the figure does not take into account the 25% of all individuals and families who are receiving zero tax cut this year. It is an average only of those who are getting some cut. When those who get nothing are added in the average cut drops to $1,217, according to the Tax Policy Center.

But most importantly, the average is inflated by the fact that most of the money is going to a relatively few taxpayers at the top of the income scale, as seen from the following table distilled from a more extensive analysis by the Tax Policy Center:

Combined Effect of Bush Tax Cuts 2003

Income
(in thousands) Percent of Households Average Tax Change
Less than 10 23.7 -$8
10-20 16.6 -$307
20-30 13.3 -$638
30-40 9.7 -$825
40-50 7.6 -$1,012
50-75 13.0 -$1,403
75-100 6.8 -$2,543
100-200 6.6 -$3,710
200-500 1.6 -$7,173
500-1,000 0.3 -$22,485
More than 1,000 0.1 -$112,925
Source: Tax Policy Center table T03-0123
Taxpayers making more than $1 million a year get an average cut of nearly $113,000 this year. Such huge cuts at the top tend to pull up the numerical average that the President is fond of citing.

A more meaningful number is the median -- or mid-point. The Tax Policy Center calculates the median cut received for income earned in 2003 is $470.

That means half of all individuals and families get less than that, and half get more.

Even the median figure doesn't give a full picture of how the benefits are spread around, however. Taxpayers make out very differently depending on whether they are married or single, and how many children they have under age 17.

That's because much of the tax relief for 2003 comes in the form of a tax break for married couples -- reduction of the so-called "marriage penalty" -- and a doubling of the tax credit granted for each child under 17, to $1,000 per child. Those do nothing to benefit single taxpayers -- including unmarried workers and millions of elderly widows and widowers, for example. In fact, the Tax Policy Center calculates that nearly 13 million of those over age 65 will get no tax cut.

On the other hand, the Bush cuts do reduce income taxes for many middle-income families to zero this year -- taking them off the federal income tax rolls entirely.

The following table, also from the Tax Policy Center, shows how different types of families in various income ranges make out under the Bush cuts this year:

Combined Effect of Bush Cuts for 2003: Typical Families

(Amounts by which federal income taxes would rise if cuts are repealed)

Income

Single

Married Filing Joint

# of kids under 17–>

0

0

1

2

3

$10,000

$110

$76

$0

$0

$0

$15,000

350

142

610

661

661

$25,000

350

702

1,210

1,661

1,579

$35,000

350

932

1,433

1,897

2,245

$50,000

669

773

1,272

1,773

2,271

$75,000

1,318

1,714

1,817

1,938

2,437

$100,000

2,001

2,596

3,004

3,413

4,510

$125,000

2,695

3,277

3,435

4,094

4,571

$150,000

3,460

4,010

3,918

3,827

4,735

$200,000

5,218

5,623

5,531

4,918

4,364

$500,000

15,585

12,328

12,328

12,328

12,328

$1,000,000

37,713

38,426

38,426

38,426

38,426

Source: Tax Policy Center Table T03-0200

The President is not the only politician who distorts the figures regarding the tax cuts, of course. As we've pointed out before, Howard Dean persisted in a false claim that "sixty percent of us got only $304," when in fact most taxpayers got more.

And some of the points in the President's election-year sales pitch are perfectly valid. For example:

Bush: Nearly 5 million taxpayers will be off the rolls as a result of the tax relief this year.

That's true for federal income taxes -- close to 5 million who previously owed some federal income tax will owe none under the Bush cuts, including many middle-income families with children.

We'll no doubt be hearing more about the tax cuts in the months to come. Both Kerry and Edwards, currently slugging it out for the Democratic nomination, have called for repeal of portions of the Bush cuts that benefit upper-income taxpayers.

Sources
George W. Bush " Remarks by the President on the Economy" Presidential Hall, Eisenhower Executive Office Building 19 Feb. 2004.
Elisabeth Bumiller, “Bush Promotes His Tax Cuts as Beneficiaries Stand By” New York Times 20 Feb. 2004.

Table T03-0123 "Combined Effect of EGTRRA and Conference Agreement on the Jobs and Growth Tax Relief Reconciliation Act of 2003: Distribution of Income Tax Change by AGI Class, 2003" Tax Policy Center Washington DC 23 May 2003.

Table T03-0163 "Combined Effect of EGTRRA and JGTRRA: Number of Tax Units by Size of Income Tax Cut and Individual Characteristics, 2003" Tax Policy Center Washington DC 23 June 2003.

Table T03-0200 "The 2001 and 2003 Tax Cuts for Representative Families By Type of Filer for Tax Year 2003" Tax Policy Center Washington DC 2 Jan 2004.