Washington economist Alan Reynolds has a great idea. Instead of raising the top personal tax rate, why not abolish the 10 percent bottom tax rate? It’s scored as a $40 billion dollar revenue loss, even though no one pays it. $40 billion dollars is 80 percent of the estimated $50 billion cost of a one year AMT patch fix-up.
Since Kudlow choose not to let us know where Reynolds made this suggestion or provide us with a link, I had to resort to Google and found this:
Both plans would eliminate the 10 percent bracket, putting the lowest rate back up to 15 percent. That’s an efficient idea, since creating that lowest rate had very little bang for the buck. Yet the very large amounts of extra revenue from raising the lowest tax rates are not to be devoted to reducing higher tax rates.
You see Larry – writing clarity is not that hard. It’s clear that the “plans” put forth by The President’s Advisory Panel on Federal Tax Reform, headed by Connie Mack and John Breaux (Reynolds isn’t trying to take credit for this idea – even if Kudlow credits Reynolds with the idea) would INCREASE tax rates. But Kudlow could not write that, he had to say that 10 percent rate would be abolished.
For upper middle class types, eliminating AMT may be a bigger deal than raising the bottom bracket from 10% to 15%. But a married couple with two children whose income is around $38,500. Personal exemptions and the standard deduction come to about $23,500 so currently they pay 10% on the remaining $15,000 or $1500 in Federal income taxes. This proposal would increase their income taxes to $2250. But Kudlow claims “no one pays it”.
Table A.1 of “Income, Poverty, and Health Insurance Coverage in the United States: 2005” from the Census Bureau indicates that 38.5% of American families had income equal to less than $35,000. While some are so poor that they are exempt from all Federal income taxes, but may do pay this 10% rate. Kudlow knows this as reducing this tax rate to 10% was one of the Republican’s argument for the 2001 tax cut. But their intent never was to reduce the tax burden from the poor so now they wish to take this away. But Kudlow wants his readers to believe that no one will be suffer higher taxes. It is not the first time he has flat out lied to the National Review readers. And I doubt this will be his last lie.
Update: William Polley has added a few comments. One set of comments shows that I may have missed a couple of exemptions for my hypothetical family. The other directs us to table 1 from this source, which is entitled “Tax Classified by Marginal Tax Rate”. A wealth of data, which shows that for 2003 that the number of returns filed was around 101.4 million. The number of returns filed with a top marginal rate equal to 10% or less was around 26.4 million, which shows that are a lot of households that Kudlow put into his “no one” classification. How can anyone not be aware of over 25% of American households?