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An Irrelevant Proposal
By PAUL KRUGMAN Here's how it works. Faced with a real problem — terrorism, the economy, nukes in North Korea — the Bush administration's response has nothing to do with solving that problem. Instead it exploits the issue to advance its political agenda. Nonetheless, the faithful laud our glorious leader's wisdom. For a variety of reasons, including the desire to avoid charges of liberal bias, most reporting is carefully hedged. And the public, reading only praise or he-said-she-said discussions, never grasps the fundamental disconnect between problem and policy. And so it goes with the administration's "stimulus" plan. Boosting a stumbling economy ("It's Clinton's fault!" shouted the claque) isn't rocket science. All a sensible plan must do is focus on the present, not the distant future; on those who are suffering, not on those doing well; and on those who are most likely to spend additional money. Right now a sensible plan would rush help to the long-term unemployed, whose benefits — in an act of incredible callousness — were allowed to lapse last month. It would provide immediate, large-scale aid to beleaguered state governments, which have been burdened with expensive homeland security mandates even as their revenues have plunged. Given our long-run budget problems, any tax relief would be temporary, and go largely to low- and middle-income families. Yesterday House Democrats released a plan right out of the textbook: aid to states and the jobless, rebates to everyone. But the centerpiece of the administration's proposal is, of all things, the permanent elimination of taxes on dividends. So instead of a temporary measure, we get a permanent tax cut. The price tag of the overall plan is a whopping $600 billion, yet less than $100 billion will arrive in the first year. The Democratic plan, with an overall price tag of only $136 billion, actually provides more short-run stimulus. And instead of helping the needy, the Bush plan is almost ludicrously tilted toward the very, very well off. If you have stocks in a 401(k), your dividends are already tax-sheltered; this proposal gives big breaks only to people who have lots of stock outside their retirement accounts. 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. ("Class warfare!" shouted the claque.) Even the administration's economists barely pretend that this proposal has anything to do with short-run stimulus. Instead they sell it as the answer to various other problems. (It slices! It dices! It purées!) Above all, it's supposed to end the evil of "double taxation." Now lots of income faces double taxation, in the sense that the same dollar gets taxed more than once along the way. For example, most of us pay income and payroll taxes when we earn our salary, then pay sales taxes when we spend it. So why has it suddenly become urgent to ensure that dividends, in particular, never be taxed more than once? That is, if they're taxed at all. In practice, the Bush plan would exempt a lot of income — rich people's income — from all taxes. Thanks to the efforts of lobbyists, today's corporate tax code has as many holes in it as a piece of Swiss cheese, and today's corporations take full advantage. Case in point: Between 1998 and 2001 CSX Corporation, the company run by the incoming Treasury secretary, John Snow, made $900 million in profits, but paid no net taxes — in fact, it received $164 million in rebates. This wasn't exceptional; the average tax rate on profits has fallen to a nearly 60-year low. Anyway, even to debate the pros and cons of dividend taxation is to play the administration's game, which is to change the subject. Weren't we supposed to be talking about emergency economic stimulus? No doubt the final version of the "stimulus" plan will contain a few genuine recession-fighting measures — a child credit here, an unemployment benefit there, a few crumbs for the states — for which the administration will expect immense gratitude. But the man in charge — that is, Karl Rove — is clearly betting that the economy will recover on its own, and intends to use the pretense of stimulus mainly as an opportunity to get more tax cuts for the rich. Ideology aside, will these guys ever decide that their job includes solving problems, not just using them? MATTHEWS: This half-hour, new year, new challenges
facing President Bush. Our panel includes Howard Fineman, Terry Jeffrey, Pat
Caddell and Bob Dornan, but first, it’s the bottom of the hour, time for the
news.
MATTHEWS: I love it. We’re back to politics. Just
days into the new year, and President Bush faces new challenges from foreign
policy to the economy to a new crop of Democratic presidential
challengers.........
MATTHEWS:
Howard Fineman is an MSNBC political analyst, Patrick Cadell is a former
Democratic pollster, Robert K. Dornan is a former Republican member of Congress
and Terry Jeffrey is a syndicated columnist and editor of the magazine, “Human
Events.” Howard Fineman, this president, this proposal today, this week to talk
about a tax cut for people who own stock and get dividends. Is this the right
political move for this president now?
HOWARD FINEMAN, NBC NEWS POLITICAL ANALYST: Some forward motion on the economy is absolutely essential if you’re a president here and your name is Bush. Again, he operates based on the memory of his dad’s experience. He’s betting that there are enough millions of people now who own stock, either directly or through 401(k)’s or through their company that this has now become a middle class cause. The Democrats are saying, no, no you got to focus on payroll taxes, unemployment. MATTHEWS: Howard, you know why I like you because if you answer the question I’m going to put to you right now. Who’s right? FINEMAN: Who’s right? MATTHEWS: Everybody out there by the way who’s watching this show owns some stock. If they get dividends of their stocks when they’re retired and Bush is saying, you don’t have to pay a plug nickel in taxes for any money you make off the stock that you own, is that going to be a problem for the people watching right now? FINEMAN: As usual you answer the question that you ask me. MATTHEWS: That’s my charm, Howard. FINEMAN: Yes, I think it’s a shrewder political bet than the Democrats do. MATTHEWS: Bob Dornan, is this a smart move for the president to say I’m going to give you 100 tax cut for any money you might spend on dividends. Is this a rich man’s deal or is this a middle class man’s or woman’s deal? BOB DORNAN ® FMR U.S. CONGRESSMAN: Middle class. I pushed for this for 20 years
in the Congress. The minute I found out -
MATTHEWS: You didn’t get anywhere, did you? DORNAN: Well, the minute I found out Germany and Japan had no capital gains tax, all of us who thought this through wanted the same for the United States. Brilliant idea. MATTHEWS: Pat Cadell is this smart populism or the president, middle class populism or is this a rich man’s deal here? PAT CADDELL, FMR DEMOCRATIC POLLSTER: Let me just ask the question, why should money made by money be taxed less or not at all than money made by man? MATTHEWS: Because it’s already been taxed once. Because it’s already been taxed by the person or by the company that made the money and is paying the dividends after it’s paid the taxes. CADDELL: Excuse me. So are gift taxes. The answer is where the money is going. This is an effort and they ultimately said it this weekend. Look, the answer is to give the upper people money. But I’m not even worried about that. What I’m worried about the issue we’re not dealing with is helping the corporations, helping the people who have been ripping off America and are paying no price whatsoever. That slap on the wrist last week on Wall Street... MATTHEWS: Do you think this is a secret tax break for the corporations? CADDELL: This is a tax break for Wall Street basically. This is to get Wall Street up basically on the accounting idea that the-the idea it doesn’t matter what the real economy does, if we somehow get the stock market up, then everything will be OK. The stock market of course is on its rear end because anyone-no sane person would put money in a stock market that’s as crooked as this one is and it’s not being enforced. Nobody’s going to go to jail. The people who were doing what they were doing on Wall Street have been given a free pass. They’re going to pay money. The 1980’s, Mike Milliken, one man charged with something less than what he’s charged with, paid $600 million in 1980s. These people paid $1 billion. That’s fair. People who steal, a woman stole three pairs of pants the other day is going to jail for life in L.A., for the rest of her life You tell me about justice in America. MATTHEWS: They were worth $6,000 though Pat. She had brought the scissors to cut the tags off. CADDELL: Excuse me. I’m talking about a black woman who was arrested. And by the way, let me ask you about this. We paid all this attention to this but we haven’t paid a bit of attention to the people who have ripped off hundreds of millions of dollars Chris. You haven’t had on the people who succeeded Mr. Lay on in terms of... TERRY JEFFREY, EDITOR, “HUMAN EVENTS”: Let me address Pat Cadell’s issue of justice. Let’s talk about justice here. Someone owns stock in America by and large is someone that worked hard, saved their money, paid income tax. CADDELL: Most of them are rich. JEFFREY: Invested in the corporation. The corporation makes a profit. They pay income taxes on the profit. They hand a little bit back in the dividend to the little old lady or man who saved all their life to buy the stock. What Pat Caddell is saying is let’s tax them again. CADDELL: That’s ridiculous. JEFFREY And by the way, if you own stock in the tax sheltered 401(k) or IRA, this also helps you because it overall boosts the value of stocks in general. So Pat, if your friends don’t save because you’re living profligate lives in southern California, that’s your fault. The answer is not - CADDELL: Mr. Jeffries-if you would pay as much attention to the fact that most of the money is going to institutional people - JEFFREY: People who save (UNINTELLIGIBLE). CADDELL: ...not to little old ladies - JEFFREY: (UNINTELLIGIBLE) folks in Hollywood, people who save. CADDELL: People with 401’s JEFFREY: People who work hard and they save. (***Lucky Ducky Widow's Mite Award to Mr. Jeffreys) CADDELL: The 401(k)s have been raped this year by your friends and basically not put in prison. JEFFREY: Make it just for the first... MATTHEWS: Pat, you’re an expert at politics. Let me ask you. If this is a hot damn issue, this concern about all the money going to the rich and going to the dividend holders and the stock investors and all. Do you believe the Democrats are going to win this election or score heavily with people like John Edwards of North Carolina with their I’m for the regular American kind of pitch. Will that work? CADDELL: No. No. Of course not. First of all, one more terrorist hit, everything changes. This amazing firepower demonstration from the air that’s about to take place in a few weeks, that will run Bush’s ratings up again. Everything changes every two months because of some cataclysmic thing around the world. So, it’s kind of fun to talk about these things early out, but this field of candidates is fading. This is the reason that things will never change for this group. They just find new ways to develop their prejudices and convince the world that they represent value and everyone else is profligate. Of course if you make a choice to have medical insurance for your family, or an education, or to fund your business and nothing is left over then you are profligate because you are not keeping up the US Capitalist Team investment in the "Country" but this has nothing to do with those "Japanese" who refuse to win and choose the team over their personal glory. No nothing at all. If this is rational then I truly am a lucky ducky and proud to be one. REH
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