BY TIM ’01
Nothing bunches up Republican underwear like taxes. “It is not the government’s Muh-Nee!” they shout, necks bulging, “It’s the People’s Muh-Nee!” Lordy. Who could argue with that? To think I’ve been over-taxed and didn’t even know it. Goodness. W’s plan is fair, Mike Adams tells me. Compassionate. Yet, somewhere in the back of my mind, I have doubts. Some of those slick pols on TV have gotten me thinking ….
Start with the numbers. We keep hearing about a $1.6 trillion tax cut and a $5.6 trillion surplus. Neither is correct. The $1.6 trillion cut – which Bush campaigned on, the White House trumpets, and Lott invokes like a Catechism – is only the start. By cutting revenue, Bush would pay down the national debt more slowly (itself largely a product of the Gipper, a Republican who never submitted a balanced budget – not once). The additional debt service will add $400 billion to the cost of the plan. Add to that the cost of adjusting the Alternative Minimum Tax, an old mechanism for smoking out crafty tax filers, which would otherwise prevent many middle class people from getting relief. Add to that the cost of making the tax cut retroactive. In all, Bush’s tax cut costs $2.4 trillion.
The surplus is chimerical as well. Half of the $5.6 trillion comes from Medicare and Social Security surpluses – money Congress took out of the budgeting process when baby boomers made it clear they did not want us fiddling with their safety net. The real surplus is more like $2.7 trillion, or, put differently, about the size of Bush’s tax cut. Which brings us to the crux of the matter. This ‘real’ surplus is nothing of the sort. It is a ten-year projection, and ten-year projections have a way of being wrong. Bush assumes Congress will allow popular tax exemptions like the HOPE Scholarship to lapse. He assumes Congress will stick to the spending caps set in 1997, cutting domestic discretionary spending by 20 percent. He assumes spending will not grow as population increases. None of these assumptions is likely. Bush is spending money we do not have.
Bush Sr. called such supply-side cuts “voodoo economics” back in 1980. And when Reagan won the election, marginal rates dropped, revenue dropped as a percentage of GDP, and deficits soared. Oops. Twelve years later, Republicans hysterically warned that Clinton’s 1993 tax bill would tank the economy. It ushered in eight years of record growth. Oops.
It has taken us 10 years of growth, two tax increases and several political scalps to balance the budget. For the first time in a generation, we can pay down the national debt – thereby lowering long-term interest rates, freeing capital and creating jobs. Yet Bush presses his tax cut logic: an unrestrained government spends more than it has in revenue, so we should fight deficits by … slashing revenue.
As troubling, Bush has separated the tax cut from the budgeting process. He wants to cut taxes first and then use the cut to force Congress’s hand in cutting spending. But that means Congress will have to limit spending to 4 percent annual increases, as per the 1997 budget agreement.
Unfortunately, Congress doesn’t quite work that way – as Ronald Reagan found out 20 years ago. If history is any guide, Congress will have less money, the President will offer no leadership on the painful task of cutting programs, members will balk, deficits will return, and other people will have to clean up the mess. Mom and Dad are ringing up the credit card debt, sending Johnny to community college and hoping little Suzy will pay for it all someday.
If Bush’s economics are bad, his morals are worse. His tax cut favors the rich, plain and simple. The wealthiest 1 percent of Americans would reap 43 percent of the benefit. They would save about $50,000 per couple per year. Folks in the bottom twenty percent would save about $47. Money has decreasing marginal utility. The same dollar means a lot more to the guy meeting rent than to the guy buying his third car. If Bush likes across-the-board tax cuts, he could cut the lowest tax bracket only, as Tom Daschle has suggested. Maybe the bottom two. Or he could cut payroll (social security) taxes – the main burden on people too poor to pay income tax. Any of these would distribute tax relief more evenly.
Which brings us to the estate tax, which conservatives have labeled the “death tax,” even though, as the New Republic observes, 100 percent of Americans die and only 2 percent pay it. The first $1,300,000 of a couple’s inheritance is untouched by the estate tax. Which is why so few people pay it. Republicans, in response, cry “Family Farmer! Family Farmer!” Never mind that only one in twenty farmers leaves a taxable estate. Never mind that most Republicans never met a factory farm they didn’t love. No, come tax time, every Republican has a pitchfork in one hand, a boombox blaring Copland in the other. Actually, we conservative Democrats like family farmers – good values and all. So let’s exempt farms. Not ADM stock portfolios.
Which brings us, finally, to some basic tax policy. The purpose of taxes is to raise money. The question is, how? American tax policy has long rewarded hard work over dumb luck. In 1916 Congress passed the estate tax to fend off a distinctly un-American institution: the hereditary aristocracy. Today, the federal government taxes earned income (wages, salary, etc.) differently than unearned income (capital gains). You would think Republicans would support such work-friendly tax policies. After all, if a $1,000 welfare check discourages people from working, imagine what a $10,000,000 inheritance will do. Republicans complain that income tax discourages work. Democrats argue that government corrects market failures and promotes the common good. By both parties’ logic, the estate tax should be raised, not lowered.
I can feel Mike Adams’ chest tightening. R-R-R-Raise the estate tax?! Make the tax cut f-f-f-fairer?! His world is spinning. He needs help. Now! He is dialing 911. No, wait, he is dialing the White House. Get me W. Help! W: “Ah’ll git you your Muh-Nee, Mike! Ah’ll explain the morality of it to the People.” Ah, better. Mike relaxes. Gated communities and country clubs across the country all breathe a sigh of relief. A sigh that whistles through W’s head.
Tim Shannon is chair of the HLS Democrats.