From firstname.lastname@example.org Wed Oct 18 13:04:27 2000
Date: Mon, 16 Oct 2000 00:01:10 -0500 (CDT)
From: Michael Eisenscher <email@example.com>
Subject: Exaggeration: The Bush Tax Cut
Politics & People; The Biggest Whopper: The Bush Tax Cut
By Albert R. Hunt, Dow Jones,
12 October 2000
Writing before last night's debate, the winner for the biggest exaggeration
is easy: George W. Bush and his tax cut.
The GOP nominee claims his tax measure principally will help the working
poor and middle-class Americans. The rich, he says, will get a smaller
percentage than they currently do, and the tax plan comfortably fits with
projected budget surpluses and his Social Security plans.
None of that is true.
Instead of making the case that a huge tax cut is necessary to reward the
productive elements of society who will make the investments that
ultimately benefit everyone, Mr. Bush misrepresents the size and the shape
of his proposal. He suggests that after setting aside half of the 10-year
surplus for Social Security, he will divide the rest between tax cuts and
initiatives in areas like education, health care and defense. In truth, he
proposes over $1.3 trillion in tax cuts and less than $500 billion for
those other initiatives, not including $196 billion of unspecified
reductions in discretionary spending.
The particulars are worse. The campaign insists the tax cuts primarily
benefit working- and middle-class folks; the governor cites the
$22,000-a-year single mother of two who faces an onerously high marginal
tax rate, and the family of four making $50,000 a year who'd get a 50% tax
cut under his plan.
That $22,000-a-year single mother with two kids would get a $72.50 income
tax liability that is rebated because of her Earned Income Tax Credit.
Under the Bush plan, she gets a $72.50 higher rebate or tax cut. But under
Mr. Gore, who liberalizes the EITC, her rebate would be $186 larger. If she
has child-care expenses the Gore proposal, but not the Bush plan, would
give her more benefits.
Bob Greenstein, director of the Center on Budget and Policy Priorities,
when asked what effect the Bush tax cuts will have on the working poor,
replies that there would be none. "Working poor families (families below
the poverty line) with children would be unaffected," he notes. The Bush
plan "does not reduce taxes or lower the marginal tax rates to families
that owe no income tax before the Earned Income Tax Credit is applied."
It's a bit more complicated for middle-income taxpayers -- that
$50,000-a-year family. Simply put, the Bush tax cut is slightly more
favorable to those middle-income families who itemize their tax returns,
because some do better if they have various expenses for which the vice
president offers write-offs. But families who don't itemize do better under
the Gore plan because of his more-liberal standard deduction. According to
the IRS, two-thirds of families making between $40,000 and $50,000 a year
The Bush claim that his tax cut not only doesn't reward the rich but
actually makes them pay more (W. the Redistributor?) is really phony. With
help from the formerly non-partisan congressional Joint Tax Committee, the
campaign concludes that the top 1% of the nation -- as measured by income
-- only get a little over 20% of the tax cut. There are two problems with
this. One, it's made to look better by basing the calculations on five-year
figures rather than standard 10-year costs. Two, these assumptions assume
the proposed repeal of the estate tax doesn't occur and thus has no effect
Under Mr. Bush repeal would occur, becoming fully effective in nine years.
In the final year of the Bush tax cut, abolition of the estate tax would
result in a revenue loss to the Treasury of $55.3 billion, or 24% of the
size of the tax cut that year. That benefit would go to an estimated 65,000
Americans. The Bush prescription-drug plan for millions of seniors would
cost less than half that.
When the Citizens for Tax Justice, using an accepted standard model,
reported that 91% of the benefits of the estate tax cut would go to the top
1%, as would 42% of the overall reductions, the Bush defenders screamed
this was a left-wing group. This is irrelevant, but focus instead on a more
conservative study worked on for years by career Treasury economists that
found that 64% of the estate tax would be paid by the top 1% of Americans
and 91% by the most affluent 5% of Americans. Under this conservative
calculation, the top 1% would get 36.2% of the Bush tax cuts and the top 5%
would get almost half.
Next, these champions of the truly deserving rich argue that decedents may
be wealthy, but the real benefits of the estate tax repeal "falls to the
widow and orphan," as top Bush economic adviser Larry Lindsey recently
proclaimed. It's nice to know Mr. Lindsey worries about Anna Nicole Smith,
but the same Treasury study finds basically no income distribution
difference between the deceased who leave estates and the heirs who get it.
Under any calculation the Bush contention that the wealthy would pay a
higher percentage of taxes under his plan is disingenuous. It ignores
payroll taxes, which disproportionately fall on the lower- and
middle-income classes. The reality is that under the Bush plan the
after-tax income of the most affluent would go up more than middle-income
taxpayers, thereby rewarding those who have prospered the most in recent years.
But to appreciate the effect this huge tax cut has on governance under a
Bush administration, consider just two areas: defense and Social Security.
The Republican nominee has been unsparing in his criticism of the
Clinton-Gore administration's defense, claiming more needs to be done on
pay, readiness and missile defense. Yet over the decade, the Gore budget
envisions spending $55 billion more than Mr. Bush proposes. Why? The Texan
can't afford it, given his tax cuts.
The press has tripped all over itself to praise Mr. Bush for suggesting a
"solution" to long-term Social Security with partial privatization. Yet
unlike the serious Social Security proposals -- such as Sens. Pat Moynihan
and Bob Kerry -- Mr. Bush insists he can do this without any cuts in Social
Security benefits. He could, if he'd be willing to cover the $1 trillion
transitional cost over the next decade by tapping into the general
revenues. But you can't do that when the majority of any surplus is eaten
up by tax cuts.
Under the Bush "reform," Social Security receipts will be less than the
benefits that have to be paid out by 2005, and without cutting benefits or
adding general revenue, the system will be broken in less than 25 years.
There is a way to fashion tax cuts that principally help working- and
middle-class Americans who have not flourished during these good times and
still not penalize wealthier Americans. The Gore tax plan falls short: It
further complicates the tax code and would provide tax rewards for behavior
that might take place anyway.
But it is benign next to the Bush plan, which probably is, as the
Democratic nominee charges, dangerous. It certainly is duplicitous.
Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved.
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