Careful whom you soak.(George W. Bush's tax cuts)

PRESIDENT BUSH'S tax cuts have been lambasted by the Left as a policy that "helps Joe Millionaire more than Joe Lunch Bucket." What they don't realize is that, without the Joe Millionaires in our society, Joe Lunch Bucket might be in the unemployment line.

Data collected by the Tax Foundation, a non-partisan research organization, indicate that, among Americans who are subject to the highest income-tax rate, two out of three are sole proprietors of businesses. President Bush's cuts have made it less expensive for them to raise capital for new plants and equipment and to hire new workers. The Left may ridicule "trickle down economics," but new research further supports what we already knew: Lower taxes on the rich help the entire economy, while higher taxes on the rich often trickle down onto the backs of the middle class and the poor.

The first piece of new evidence comes from economist Charles Kadlec of J. & W. Seligman & Co., a New York investment firm. Kadlec's calculations, based on Treasury Department tax data, indicate that, after income-tax rates on the rich were raised under George H. W. Bush and Bill Clinton, something very strange occurred: After-tax incomes of the rich continued to rise, but the incomes of the middle class shrank. Why did that happen?

Kadlec explains the riddle by comparing taxes to tariffs. "Income taxes are not really levied on a person any more than a tariff is levied on a company," he says. "Rather, income taxes are levied on income-producing activities.... Just as the foreign company that pays a tariff passes that levy on to consumers by raising the price, business owners in America faced with higher taxes will also attempt to pass on the cost to someone else--either the workers in the form of lower wages, or the consumers in the form of higher prices." That is to say, some portion of the taxes on business income and investment income that are aimed at the rich is actually borne by workers and consumers, who are typically not rich.

The empirical data fit Kadlec's theory like a surgeon's glove. In 1993, the year that Clinton's big tax hike took effect, the before-tax incomes of the top 5 percent of American earners rose by about 20 percent--almost precisely the amount needed to offset their ...