More Fuzzy Math on Tax Cuts

It’s déjà vu all over again with President Bush’s new tax plan. Under the guise of an economic stimulus to help all Americans, more than $300 billion will go to the wealthiest 5 percent. The administration’s latest tax proposal is exactly the wrong kind—more permanent tax cuts for the rich—at exactly the wrong time, when America is facing short- and long-term budget crises. The Democrats in the Senate should do their utmost, filibustering if necessary, to prevent the plan from becoming law.

The details of the Bush plan are shocking: the administration would repeal the tax on stock dividends as the centerpiece of $674 billion in cuts. Overall, the plan could increase the deficit, already expected next year, to $300 billion. This comes at a time when states are facing massive budget shortfalls due to lower revenues and rising costs of security and health care. At the same time, the administration is gearing up for a war with Iraq. The cost of a war is undetermined as yet, but the conflict would certainly cost tens of billions of dollars and could consume up to $200 billion, according to some estimates.

The administration’s new tax breaks will do little more than help the wealthy, even though the president’s recent rhetoric makes it sound like he hopes to help the economically disadvantaged. As New York Times columnist Paul Krugman pointed out on Jan. 7, “More than half the benefits would go to people making more than $200,000 per year, a quarter to people making more than $1 million per year.” Many seniors and members of the working class who need help the most are already exempt from dividend taxes, under their 401(k) retirement plans.

Democrats in the Senate worry that it would be political suicide to oppose a tax cut without offering a plan of their own, which is why they are suggesting a payroll tax rebate for every American. This would act as a much better short-term stimulus because it would be more evenly distributed, and the poor are more likely to spend additional income in the short run. The Democrats’ plan would also avoid the long-term deficits included in Bush’s plan because their cut would not be permanent.

Nevertheless, considering the bad financial situation of federal and state governments, we oppose any tax cuts this year. Bush’s 2001 tax cut was a large part of the reason for the current deficits; it would make more sense to repeal that law, which will further reduce income taxes and eliminate the estate tax, instead of speeding up its effects.

One argument for cutting the dividend tax is that it amounts to a double tax—the money is taxed once as corporate profits and again as dividends when it is passed on to investors. But “double taxation” has been a part of America’s economic system for years, with money getting taxed first when it goes to workers as income (payroll tax) and then again when it is spent (sales tax).

This tax cut, like most of Bush’s proposals, is designed to help the rich while ignoring the poor. Of course, Republicans will claim that any discussion of who benefits from Bush’s tax cut is “class warfare;” apparently they think Americans should close their eyes to a major policy proposal’s obvious consequences.

Times like these call for political courage from Democratic senators—we hope that somebody will have the courage to filibuster any and all new tax cuts.