"Tax Cut for the Rich" and the Meaning of Words

Apr 17, 2011

On this morning’s “Meet the Press” the usually oracular Alan Greenspan was unusually plain-spoken. He suggested that while tax increases rarely achieve their intended deficit-reduction purpose, given the U.S. government’s current deficit troubles, it might be best to allow the Bush era tax cuts (“BETCs”) to expire for all taxpayers, not just those in the upper income brackets.

Now, I’m not writing this post to express an opinion about extending the BETCs – you will make up your own mind about that. But Greenspan’s comment made me think about the overheated, misleading, and sometimes dishonest rhetoric surrounding this particularly radioactive topic. I’m thinking particularly about the assertion that extending the BETCs constitutes a “tax cut for the rich.”

First of all, is it really a “tax cut”? Well, the BETCs have now been in place for ten years, so would it be a “tax cut” if we simply continued the tax structure we’ve all gotten used to? You could just as logically argue that allowing the BETCs to expire constitutes a tax increase, especially given the current economic situation. It all depends on your point of view.

Next, even if you choose to call it a “tax cut,” is it fair to characterize it as “for the rich”? The BETCs were across-the-board, reducing tax rates at all income levels. Extending the BETCs would keep taxes at their present rates not just for the rich, but for all taxpayers, and ending them would increase them for everyone.

Lastly, you may not be aware of this, but the BETCs were a progressive measure – that is, while they were an across-the-board tax decrease, their effect was to increase, rather than decrease, the share of the total tax bill paid by the rich. Therefore, allowing the BETCs to expire for everyone would have the effect of decreasing the share of the taxes paid by the rich.

Again, I’m not taking a position about extending the BETCs. You may feel strongly that the rich don’t pay their fair share, or that they’re overtaxed. But that is a separate issue. My concern is that characterizing extending the BETCs as a “tax cut for the rich” is intellectually dishonest, and inflames an already complex and emotional issue.

The numbers are the numbers. But the words we wrap around the numbers make all the difference between an honest presentation of information, and just more partisan political rhetoric.

“Painting with Numbers” is my effort to get people talking about financial statements and other numbers in ways that we can all understand. I welcome your interest and your feedback.

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