It would seem logical that income taxes would be progressive, and that tax rates would increase as income does. But the research done by Brian Roach, a research associate at Tufts' Global Development and Environment Institute, indicates that if the tax cuts implemented by President George W. Bush are eventually made permanent, income taxes will actually become regressive - decreasing as income increases.
"The Bush tax cuts have flattened taxes," Roach said. "Measured as a percentage of income, the wealthy have benefited significantly more than the middle class and poor."
"Further, if the Bush tax cuts are made permanent - as is his intention - the tax system would flatten to the point where those in the top one percent of the income distribution would actually be paying an overall tax rate that is lower than people in the upper middle class," said Roach, adding that this is primarily because those at the top get a larger proportion of their income in capital gains and dividends.
"The middle class looked like they were getting a good deal to start, but over time they lose," he said. "The Bush government is misrepresenting some of the effects, trying to sell it as a middle class tax cut. It worked the first couple of years, but in the long run, approximately half of the benefits go to the top one percent - people with [an] average income of $938,000 per year."
"One of the things that makes this even more unbalanced is the way incomes have been changing over the years," Roach added. "Over the last few decades, people at the lower end of the income spectrum have seen income go up little. People at the top have seen it go up very much."
Roach shared statistical data with the Daily that showed that between the years of 1979 and 2000, the bottom fifth income bracket has seen an increase in income of nine percent. Conversely, the top one percent of income brackets has seen income soar - up 201 percent.
"It's a double-barrel approach - the top one percent has seen huge income gains and the biggest tax cuts too," he said.
Though Roach's background is in environmental policy, he became interested in taxes as a policy issue over the last couple of years. His conclusions, which he shared with the Christian Science Monitor earlier this month, have come from data provided by an independent agency called Citizens for Tax Justice.
According to Roach, the government has stopped producing results about the effects on tax cuts for people of different incomes since the Bush administration took office.
"My research has really focused on the distribution of the tax cuts and tax payments overall," Roach said. "One problem is that we've been lowering federal income taxes, which are quite progressive. Meanwhile, those taxes which are regressive, such as sales and Social Security taxes, are a relatively large burden on lower-income people."
The Bush tax cuts follow a supply-side economics way of thinking. "Supply-side economics says that tax cuts to the wealthy - entrepreneurs, investors, etc. - cause economic growth because these people invest more money, work harder, and therefore create more jobs," Roach said.
Roach mentioned a similar attempt by former President Reagan in 1984 - an attempt Roach believes demonstrated that the theoretical gains of this plan don't really exist. "There is no push on wealthy people; it doesn't generate that much more growth," he said.
While supply-side economics focuses on employers, demand-side shifts attention to the employees. "With the demand-side approach, instead of looking at those supplying the jobs, we look at consumers," Roach said. "If we give them more money, they will spend it."
"I think the problem is that the majority of the tax cuts went to the wealthy, who tend to save a larger percentage of their income than middle-class and poor households," Roach said. "If you give a tax cut to lower-income people, they will tend to spend it all immediately, providing economic stimulus. But if you give a tax cut to the wealthy, they tend to save it, providing less stimulus."
"Right now, there are abysmal savings rates," said Roach, who added that savings rates change for higher incomes. "If you give [lower-income groups] a tax cut, they're not going to save it. Poor people essentially save nothing."
How much do extra tax dollars mean to people at the bottom? A lot, Roach said. "If they have to pay more [in taxes], they will be giving up health care, education - essentials," he said.
Roach also mentioned that, in comparison to other countries, U.S. taxes are already low: in 2000, the total tax revenue as a percentage of GDP was only 29.6 percent.
"There also isn't much room to go lower," he said. "All European countries have higher taxes than the U.S. - but they also have more publicly provided goods and services."
Roach points out that there's some validity to both approaches. "The recession was short - maybe [the tax cuts] did help there," he said. "But in the long run, there are huge costs looming ahead, according to most experts.
"I see it more as a timing issue - huge surpluses were forecasted, under admittedly somewhat unrealistic conditions, but now we're projecting huge deficits," Roach added. "We could have used the finances for health care, Social Security.
"For the first time, we've had a war and lowered taxes - it's an experiment we haven't had before," Roach said. "We're getting money for the war by borrowing, and will have to pay interest in the future.
"Can we continue with such low tax rates? Eventually we will have to raise tax rates - and to even higher levels than before," Roach said.
For now, however, the impacts of the Bush tax cuts are not really a concern for students. "Students don't earn a lot of money - less than $16,000 a year - so benefits are generally less than $100 per year," Roach said. "Making tax cuts permanent will have little effect on students.
"This changes once students are finally out and getting jobs - you will have to pay higher taxes," he said.
