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Are tax breaks for the wealthiest good for an economy flirting with deflation?
Who will have the president’s ear
in the end? Bringing economic debate back to where the immediate argument lies,
like an errant golf ball that refuses to land where the golfer intended it: The
Politics of Selling Tax Breaks for the Wealthiest
By David E. Rosenbaum, NYT, 12.21.2002 @ http://www.nytimes.com/2002/12/22/weekinreview/22ROSE.html WASHINGTON — The Bush administration is torn between what
some officials believe is good
tax policy and
others fear is bad
politics. At issue are tax cuts for the
rich. Many conservatives have long
despised the progressive income tax, which taxes the wealthy at a higher rate,
holding that it is unfair, unnecessarily complicated and economically
inefficient. They argue that the
tax burden falls so heavily on so few people that it is difficult to mobilize
political support for overhauling the tax system. "It not only makes it more difficult to get people to
want to abolish the income tax, it also makes it more difficult to give tax
relief to anyone," said former
Representative Bill Archer, a
Texas Republican who was chairman of the House Ways and Means Committee until
he retired from Congress last year. In the next few weeks, President Bush will propose a package
of tax cuts, convinced that lowering taxes is the right tonic for whatever ails
the economy. No one in the know will say exactly what the president plans. But the best guess is that he would eliminate or sharply reduce the income taxes
individuals pay on stock dividends, move to 2003 the upper-bracket rate reductions
scheduled for 2004 and give companies more generous breaks for investments in
equipment. Mr. Bush is also expected to propose making permanent the tax cuts
enacted last year. These cuts,
including abolition of the estate tax, are scheduled to expire in 2011. Democrats are looking for every opportunity to portray the
president as the patron
of fat cats. And they pounced on a passage in a
speech this month by R.
Glenn Hubbard,
the chairman of the President's
Council of Economic Advisers,
maintaining that "the
increasing reliance on taxing higher-income households and targeted social
preferences at lower incomes stands in the way of moving to a simpler, flatter
system." The administration's strategy, declared Democratic
Representatives Charles
B. Rangel of New York
and Robert T. Matsui
of California
in a letter to colleagues, is "to
raise taxes on lower- and middle-class families in order to finance deeper tax
cuts for the wealthiest Americans." Mr. Hubbard declined last week to respond to repeated inquiries
about whether he in fact supported increasing taxes on low- and moderate-income
families. But Claire Buchan, a
White House spokeswoman, dismissed the notion that this was the president's
position. A more senior White
House official said, "It is preposterous to think that the president would
stand up and say, `I want to put more people on the tax rolls.' " Yet, as soon as the president's plan is unveiled, Washington
will be deluged with statistical tables, showing that the big winners would be
the richest people in the country. Using
data compiled by the Congressional tax staff and the Internal Revenue Service, Citizens for Tax Justice, a liberal
research institute, found that the wealthiest 1 percent of taxpayers — those with
annual incomes over $356,000 — would receive about half the revenue the
government would lose next year if dividends went untaxed and 45 percent of all
the money from accelerating the rate cuts. The 80 percent of households with incomes below $73,000 a
year would get less than 10 percent of the new tax breaks. These findings are not surprising. After all, the richest 1 percent has 18 percent of all the
pretax income and pays 36 percent of all personal income taxes. But studies like this reinforce the
public perception that the Bush administration favors the rich. A New York Times/CBS News Poll in
October showed that 55 percent of those surveyed held this view, while only 25
percent thought the administration treated everyone equally. It was one of few instances where the
national poll found that Mr. Bush was seen in a negative light. To make his tax-cut proposals more politically palatable,
people who follow administration policy closely say the president will probably
offer additional tax cuts that would make his proposal look less lopsided in
the statistical analyses. One
possibility is another rebate like the one taxpayers received last year, but
limited to lower-income families.
Another is a temporary suspension of the Social Security payroll tax for
workers. A third is an additional
tax break for retirement savings by people with modest incomes. Robert M. Teeter, a Republican pollster, said politicians
in his party tended to be overly anxious about how their tax cuts benefited the
wealthy. Surveys show, Mr. Teeter
said, that ordinary people are not so much jealous of the rich as they are
hopeful of reaching the point where they, too, can get tax relief. But officials who have worked on tax matters inside previous
Republican administrations said enormous attention was paid to the political
effect of the statistics showing winners and losers from tax policy. "The straitjacket of distributional tables," said Michael J. Graetz, who was the top tax official in the president's
father's administration, "often
distorts good tax policy." In any case, no one expects Mr. Bush to offer a proposal
next year for replacing the progressive income tax with another tax
system. But few doubt that such a
system is his ultimate goal. The
challenge will be finding one that is not skewed toward the rich. Last week, three
prominent conservatives
— Jack F. Kemp, the 1996 Republican vice presidential
nominee; Stephen Moore, president of the Club for Growth, a
conservative political action committee; and William Kristol, editor of the Weekly Standard — urged the president to support a reduction
in the payroll tax. "If Bush goes for tax cuts that, fairly or unfairly,
can be accused of being skewed to the rich and to investors, that is a fight
they will lose," Mr. Kristol said. Karen Watters Cole Outgoing Mail Scanned by NAV 2002 |
