APRIL
2001
2001
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APRIL
2001 |
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Bush's Fuzzy Math and False Promises Skew Tax Debate
If that sounds eerily like Reagan’s 1981 tax and budget proposals, it’s because Bush’s plan is a return to what his father insightfully called “voodoo economics” during the Republican presidential nomination fight in 1980. Reagan’s tax and budget policies produced a long string of record-busting budget deficits and a soaring national debt that dragged down the U.S. economy in the early 1980s to a full-fledged recession. Slow growth, high unemployment, and high interest rates provided the rationale for Reagan’s slashing of domestic spending. This was when then Rep. Dick Cheney, R-Wyo., justified his right-wing extremism by exclaiming, “I had to vote against Head Start because of the budget deficit.” Then Senate Majority Leader Howard Baker, R-Tenn., called Reagan’s 1981 tax and budget plans “a riverboat gamble.” Columnist David Broder today says, “If that was a gamble, this [Bush’s proposal] is an absolute crapshoot.” Bush is fuzzy about where the money comes from to pay for all his budget proposals. His own Office of Management and Budget Director Mitch Daniels, for example, concedes Bush’s budget contains no estimate of the additional costs of making the proposed tax cuts retroactive to January 1, 2001, as Bush now intends. Nor does Bush’s $1.6 trillion tax cut price tag include the costs of additional interest that would have to be paid on the proportionately higher national debt that would remain if revenues were reduced. This brings the real cost of Bush’s tax cuts for the wealthy closer to $2.6 trillion. So how does Bush hope to pay for his tax cut and budget proposals? First, it doesn’t help when Bush spends the same trillion dollars twice. The additional costs of a retroactive tax cut and higher debt service will wipe out his so-called contingency fund. Second, Bush relies on a 10-year projection to arrive at his $5.6 trillion surplus. No one takes 10-year projections any more seriously than 10-year weather reports. You wouldn’t plan a barbeque in the year 2011 around one. In 1991 a 10-year projection would have predicted a staggering budget deficit for 2000, not the huge surplus we have today. Just as important, more than half the projected surplus--as economist Paul Krugman notes--comes from the Social Security and Medicare programs financed by payroll taxes. But even if these optimistic projections prove correct, Bush’s tax cut will consume virtually the entire non-Social Security and Medicare surplus. UAW President Stephen P. Yokich comments, “Mr. Bush won’t admit it, but his tax cut and budget plans threaten to siphon off money away from the Social Security and Medicare trust funds, robbing millions of Americans of the secure, dignified retirements they have worked long and hard to earn.”
Bush said in his budget message, “My plan pays down an unprecedented amount of our national debt, and then, when money is still left over, my plan returns it to the people who earned it in the first place.” Now, if that were true, who could argue? But, in fact, fully $4.2 trillion of the theoretical $5.6 trillion surplus is projected to occur after the next presidential election. Only $1.4 trillion in surpluses is projected during Bush’s current term. Bush boasts that lower-income people will get a bigger rate cut than upper-income taxpayers. That’s true, but payroll taxes, not income taxes, are the main burden on families in the lower tax brackets. More than 80 percent of all Americans pay more on their payroll taxes (FICA, or Social Security, and Medicare) than they pay on federal income tax. Bush’s plan does nothing to reduce that burden. “By proposing to eliminate a tax that falls entirely on the rich, to cut a tax that falls mainly on the well off, but to ignore the main tax paid by most people, the administration has made a deliberate decision to tilt tax relief strongly toward the top of the scale,” said Krugman. And, of course, having your rate reduced from 15 percent to 10 percent when your taxable income is only $18,000 is a lot different than having your rate cut from 39.6 percent to 33 percent when your taxable income is around $418,000. A 5-percent pay raise for that low-income worker, however, would be worth a lot more than a Bush tax cut of around $200. If he really wanted to help low- and middle-income workers, Bush ought to support the right of workers to organize and bargain collectively with their employers. Bush’s mythical waitress mom Bush likes to say that his plan will benefit a single mom with two kids who works as a waitress. Let’s say she earns $500 a week, or $26,000 a year. As a head of household with two children, she pays at most $672 in federal income taxes. If she has childcare expenses and takes the current child and dependent care credit, her tax liability will be less. It may even be zero. If her childcare expenses exceed $250 a month, the child and dependent care credit would erase her entire income tax liability. Thus, she would receive no benefit whatsoever from Bush’s rate reduction or his proposal to double the child tax credit. That’s because Bush doesn’t make that credit refundable as does the AFL-CIO’s tax plan. She still has to pay Social Security and Medicare taxes, which add up to $1,989. Again, Bush’s plan does nothing to reduce that burden. Let’s say the waitress mom doesn’t claim the child and dependent care credit because her parents take care of the kids after school. The absolute maximum break she could realize from Bush’s plan is $672. Useful, but a lot less than she would receive with the AFL-CIO’s prosperity dividend and making the child tax credit refundable, another union proposal. The rich only get back their fair share Bush says the rich deserve more money back because they pay more taxes. Well, they do pay more taxes, but not as much as Bush would have you believe. In calculating who pays what, Bush leaves out payroll taxes and federal excise taxes. Plus, the rich pay less of a share than they did in 1996. When payroll and excise taxes are taken into account, the richest 1 percent’s share of the Bush tax cut is roughly double what they pay in. The inheritance tax Bush may see dead people forced to pay taxes, but in the real world only 2 out of 100 will need to pay inheritance taxes, or the “death tax,” as Bush calls it. Currently $675,000 ($1,350,000 for a married couple) is exempt from the inheritance tax. This exemption is already scheduled to increase significantly in 2006. Assets passed on to a spouse or charity are not taxed at all. Again, only 2 percent of estates pay any tax, and half of the tax is paid by no more than 4,000 multimillion-dollar estates each year.
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George
W. Bush promises to slash taxes, increase spending for education and defense,
provide a Medicare prescription drug benefit, create an $842-billion contingency
fund, pay down the national debt, and strengthen Social Security and Medicare--all
at the same time.
So
where’s the other money to come from to pay for education, prescription
drug coverage, defense, and paying down the debt?