Tax Cuts and Stagnation

Via Tyler Cowen, here's a neat little statistical analysis showing why Americans are so opposed to tax increases:

I’ve long wondered what median income would look like after taxes were taken into account and if the structure of Lane’s chart might change given the dynamic nature of tax policy. Bruce Bartlett’s recent post on average tax rates for four-person families pointed out the data I needed to make such a comparison. The Tax Policy Center produces annual average tax rates for four-person families at the median income level. Using their historical data I can back out the growth of after-tax median family income since 1980 (just after GDP per capita and median family income start to diverge) and add that data to the chart that Lane produced.

…The results, though not earth shattering, are interesting. Prior to 2000, both real (i.e. inflation adjusted) median family income and real median family income after taxes grew at about the same rate. Real median family income has actually declined since 2000, but when you look at after-tax dollars received by households it’s been relatively flat. In other words, the median family has been able to avoid a more substantial decline in income by paying somewhat less in taxes.

In a world where real income is actually declining, Bush's tax cuts kept people's incomes rising a little. But we can't keep running massive deficits forever, so this is just not a long-term solution.