Monday, May 15, 2006

Tax Cuts- More Fuzzy Math

The $70 billion tax cut bill received final approval last week from the Senate, and now awaits President Bush's signature to become law. The President is expected to sign it sometime this week. The bill was approved largely along party lines.

Senators Kay Bailey Hutchison and John Cornyn voted for the tax cut bill. Senator Hutchison expressed confidence that the two-year extension of the sales tax exemption, important for states like Texas that lack an income tax, would be included in a follow-up bill expected later this year.

The bill was roundly condemned by economic think tanks and the Democratic leadership.
Saying the bill "caters to an elite group of wealthy Americans at the expense of the middle class," Senate Minority Leader Harry Reid, D-Nevada, said extending the cuts was fiscally irresponsible, especially during an era of high budget deficits. "I've heard, and I always thought, Republicans were the party of fiscal integrity," Reid said. "This has been blown sky high."

But Frist fired back that almost half of the tax returns declaring capital gains and dividends come from people with adjusted gross incomes of less than $50,000.
According to the Brookings Institute, if you make $50K or less, your share of the cuts amount to an average of $46. Compare that to $42,000 in tax cuts for anyone making over $1 million. Many more wage earners make $50K than one million, so Dr. Frist is technically correct. But the suggestion that these cuts represent tax relief for the middle class is typical of the lies and distortions that have used to sell this house of cards since before President Bush even took office. When Vice President Al Gore pointed out that candidate Bush's plans amounted to a tax cut for the wealthy, Bush accused him of "fuzzy math."

Yes, President Bush campaigned on tax cuts, and he's kept his word. This tax cut package represents the sixth in as many years. The result is that federal revenues have slipped since 2000 from 21 percent to 17.5 percent as a share of GDP. During the same period, federal spending increased from 18.4 percent to 20.8 percent of GDP. The difference is made up with borrowed money, and the debt is rising year by year. The deficit has grown fifty percent under Bush's watch. In the not too distant future, Congress will be asked to raise the debt ceiling to an unfathomable $10 trillion.

David Broder highlights a speech on the Senate floor by George Voinovich, who earned his political chops advocating fiscal discipline as governor of the Buckeye state. Voinovich was one of three dissenting Republicans to vote against the tax cuts.

Some members believe that the solution is to grow the economy out of the problem, that by cutting taxes permanently, the economy will eventually raise enough revenue to offset any current losses to the U.S. treasury. I respectfully disagree with that assertion....In November 2005, former Federal Reserve Chairman Alan Greenspan testified before the Joint economic Committee and told Congress: 'We should not be cutting taxes by borrowing.'...Instead of making the tax cuts permanent, we should be leveling with the American people about the fiscally shaky ground we are on...."

The question I ask is, what sacrifice are we making? Anyone in the know who is watching us has to wonder about our character, our intellectual honesty, our concern about our national security, our nation's competitiveness in the global marketplace now and in the future, and last but not least, our don't-give-a-darn attitude about the standard of living and quality of life of our children and grandchildren.

The question is, are we willing to be honest with ourselves and the American people and make these tough decisions?

Senator Voinovich, you are so living in the 20th century. The Republicans haven't stood for fiscal responsibility at the federal level in at least a quarter century. That's why you have to keep switching sides to vote with the Democrats in support of fiscal reform. Remember PAYGO? Too bad your fellow Republicans didn't leave it alone. From the March 2005 release of the Center on Budget and Policy Priorities:
Last year, the House Budget Committee approved legislation that would fundamentally alter PAYGO by applying it only to increases in mandatory programs. Under that approach, tax cuts would not have to be offset, regardless of their size, economic justification, or impact on the deficit. That proposal was not aimed at controlling deficits. Rather, it was more narrowly designed to control spending by requiring that entitlement expansions be offset with cuts in other entitlement programs. Since tax cuts would be exempt from fiscal scrutiny under such a proposal, deficits could rise substantially even if the spending restraint in the proposal proved effective....

There is no good reason to exempt tax cuts from budget enforcement rules. In the absence of a compelling case to provide short-term economic stimulus, if Congress wants to pass particular tax cuts, it should either reduce mandatory programs or raise other revenues to offset the cost of the tax-reduction measures, not simply give itself a free pass to enact tax cuts without financing them. Doing otherwise
merely provides an open invitation to keep our existing government services without fully paying for them and then send the bill to our children.

We're already cutting our existing services, but let's not quibble. The conservative pundits argue that Bush is a liberal because they don't like his fiscal policies. But those policies have been soundly renounced by the Democratic leadership. And what does that make the Republican House and Senate who have voted in lock-step to follow the President over the cliff?

If after all this, you're still hankering for more discussion of the tax cuts and fiscal policy, go to Brad DeLong's website and click on "Morning Coffee Videocasts: Time for a Fiscal Stabilization Board to Deal with the Deficit?" It sounds like a sleeper, but it's pretty quirky.


Bradley said...

One thing to remember is that the reason the middle class gets less tax relief is because they pay less taxes than the wealthy, but I agree with you. I have three major reasons for opposing the tax cuts:

1) Bush has already passed enough tax relief during his administration.
2) We are at war and in deficit and cannot afford to offer tax relief.
3) The tax relief doesn't really help the middle class, which is the majority of Americans.

Unknown said...
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Unknown said...

The wealthy make most of their money through sources other than wages, so a reduction in dividend taxes is an enormous boon to them. As a result of the tax changes in the last ten years, the superrich are paying a smaller percentage of that income in taxes than they used to, and they are accumulating assets like no other time in recent history. We are losing the progressive structure of our tax system, and in the process we are enthroning a ruling class, all under the guise of tax relief for the middle class.