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1 Scott A. Hodge, Periodic Tax Cuts a Necessary Companion to a Progressive Income Tax Code 1 (2001)

handle is hein.taxfoundation/pertadexz0001 and id is 1 raw text is: TAXO
FOUNDATION
February 2001

Periodic Tax Cuts a Necessary Companion to a
Progressive Income Tax Code

George W. Bush is currently locked in a
serious debate with members of Congress over
how much of the projected $5.6 trillion in bud-
get surpluses should be given back to American
taxpayers and what form those tax cuts should
take. President Bush and a growing number in
Congress argue that the government's ballooning
budget surpluses justify an across-the-board re-
duction in marginal tax rates. Others in Con-
gress, however, argue that these surpluses
should be used to deliver targeted tax cuts to
specific groups of taxpayers such as those

Fiqure 1
Since 1992, Nearly hal.:of jAll New Personal Income Growth Ilas Gone
To Pay Taxes

 0
4 Feera

I1
Dspoal

Source: Tax Foundation, Bureau of Economic Analysis

deemed to be middle-class.
While targeted tax cuts would certainly be a
boon to a select group of taxpayers, such cuts
would add unnecessary complexity to an already
complicated tax code. More importantly, how-
ever, targeted tax cuts would not fix a more
serious problem in the tax code - real income
growth is combining with the code's progressive
rate structure to make tax collections grow at a
faster rate than taxpayers' incomes.
This fact was not lost on Federal Reserve
Chairman Alan Greenspan during his recent testi-
mony before the Senate Budget Committee:
[T]he experience of the past five to seven
years has been truly without recent prece-
dent. The doubling of the growth rate of
output per hour has caused individual's
real taxable income to grow nearly two and
one-half times as fast as it did over the
preceding ten years and resulted in the
substantial surplus of receipts over outlays
that we are now experiencing.
Recently released statistics from the Bureau
of Economic Analysis show that while the
nation's economic performance over the past
eight years has been an enormous benefit to
working Americans, it has been equally beneficial
to government coffers. Since 1992, total per-
sonal income has grown by more than $2.8 tril-
lion. However, as shown in Figure 1, nearly half
of all of this new wealth went to taxes at the
federal, state, and local levels. The largest share
of this new income (18 percent) went to federal
income taxes, while state and local taxes took 16
percent and all other federal taxes - including
payroll taxes - took 15 percent.

Scott A. Hodge
Executive Director
Tax Foundation

4

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