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Partisan Lines Harden
in Debate Over Tax Cuts
By: David R. Francis
Article re-printed from The
Christian Science Monitor, March 31, 2003
Here's a switch: Democrats and liberals
are accusing the Republicans of engaging in "class
warfare."
Ever since the battle over the $1.4 trillion tax cuts
in 2001, President Bush and his supporters have tried
to squelch talk of the benefits going mostly to the
well-to-do by charging the critics with class warfare.
Now what's gone around is coming around.
On March 21, the House passed a budget resolution
with $265 billion in cuts, primarily from programs
for low-income families, children, and elderly or
disabled people. Also, student loans will be hurt.
"Class warfare turns out to be alive,"
holds Robert Greenstein, director of the Center on
Budget and Policy Priorities. "Deep budget cuts
that could harshly affect the poor, the vulnerable,
and many middle-class Americans alongside lavish tax
cuts for the nation's richest individuals."
Last Wednesday, though, the Senate voted to halve
the president's latest proposal, for a $726 billion
tax cut over 10 years, to $350 billion. Several moderate
Republicans joined Democrats to pass that budget resolution
amendment 51 to 48. They disliked the combination
of big tax cuts, growing budget deficits, and a $75
billion six-month down payment on the cost of the
Iraqi war requested by Bush. The Senate had already
voted a $100 billion trim of the Bush tax-cut plan
to accommodate war expenditures.
Presumably, the Senate action would allow smaller
spending cuts. Republican leaders tried unsuccessfully
to enlarge the budget resolution beyond $350 billion.
A budget resolution acts, in effect, as a mushy limit
on tax cuts and spending.
The Senate and House must agree next month on a resolution
number. Final spending and tax-cut votes are months
away.
If a large tax-cut, large benefit-cut combination
comes out of the congressional mill, and it is possible,
Democrats could have a dandy campaign issue in the
2004 elections. It worries moderate Republicans.
You can imagine the Democrats' campaign slogans:
The nation's poorest families face slashes in Medicare
and childcare so millionaires can pay $90,000 a year
less in taxes.
Populism might have a comeback - if better-off voters
care about the poor.
Merely dropping the corporate dividend tax cut in
Bush's new tax-cut plan would save enough revenue
- $396 billion over 10 years - to more than fund the
benefit cuts in the House plan.
Partly because dividend-tax relief benefits mostly
high-income taxpayers, it is regarded as vulnerable
in Congress. About 75 percent of the tax benefits
would go to those making $100,000 or more, the top
8 percent of taxpayers, finds economist Brian Roach.
They would save $3,000 in taxes per year. Most would
be middle-aged and white.
The administration's sales pitch for this tax cut
is "misleading,"says Mr. Roach, a researcher
at Tufts University, Medford, Mass. Contrary to the
claim that seniors receive more than half of all dividend
income, Census Bureau data indicates they get only
one quarter.
The administration holds that the average tax savings
for the 7 million seniors receiving dividends would
be $936 a year, "money they could spend or reinvest
for their retirement."
But that $936, notes Roach, is an average rather
than what the "typical" or "median"
senior would save. Although not able to come up with
a specific median number for seniors, Roach notes
that three-quarters of seniors have no dividend income
at all. Of those who do, most would realize benefits
less than $936 while a relatively small number would
save far more.
The Bush administration uses the same statistical
tactic in other tax-cut claims. Because incomes in
the United States are so skewed to the top, an average
often sounds better from a political standpoint than
the median. For illustration, if one person saves
$3,000 a year in taxes and another $75,000, their
average saving comes to $36,000.
Mr. Greenstein accuses administration officials of
audacious manipulation of budget numbers: "They
are cynical to a degree that I have never witnessed
in any other administration, Democratic or Republican."
Since high-end taxpayers would receive the bulk of
the benefits from the dividend proposal, it would
increase US income inequality, already at a historic
high and greater than in any other developed country,
notes Roach.
But administration officials argue that all this
income-distribution analysis is irrelevant, that the
tax cuts will so boost the economy that everyone will
benefit from more jobs, more income. The dividend
plan alone would add 431,000 jobs over the next 18
months.
It is a trickle-down theory. It maintains that tax
savings, especially by small business, would be invested
in job-creating activities.
Roach counters that tax cuts aimed more at low-income
groups would give the economy a bigger, more immediate
boost because they tend to spend nearly all extra
income, whereas the prosperous save proportionately
more. Business, with a large amount of excess capacity
at present, needs more customers far more than it
needs new capacity.
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