Rick's Ramblings

Monday, August 30, 2004

The Impact of Tax Cuts

I must confess that I’m a fan of lower taxes. But, I am very concerned about the deficit that the US is accumulating. And, I heard and editorial the other day that really made me angry.

The Government Accounting Office—a nonpartisan organization—published a report on the impact of the Bush tax cuts last week. It confirmed what many had been saying. The bulk of the tax breaks went to the 1% most wealthy people in the US. The top 20% earners saw significant reductions. Reductions elsewhere were minimal.

And, it confirmed that the impact of the tax cuts, while spending huge amounts of money on the war in Iraq, is an ever-expanding budget deficit.

What is ironic is that when the government runs a deficit, it must sell debt in order to balance the books. This is usually T-bills. Guess who buys the T-bills? The richest Americans.

So, the tax cuts decreased the tax burden of the richest Americans, and with that savings they are now buying Government debt which must be serviced with interest payments. Guess where the money to make the interest payments must come from? The rest of us who are paying taxes!

The richest Americans get a huge tax break which they then use to earn interest in investments—interest that low-and middle-income families pay through their taxes. Ironic.

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