Senate gives Bush a $350 billion tax cut---

Hey Max, you'd be right..... if I was a Democrat!

 

I would like to think that a democrat could see that paying down the debt would enable tax cuts that were actually sound instead of the ones that we have now, while the deficit grows.

If the govt. cut the debt down it would save 15% on it's total spending. That's the intrest on the debt alone. It may soon go up, as a result of this. So not only is there going to be a tax cut, the bill basically increases govt. spending. If republicans were serious about cutting spending they would put the money to paying off the debt not decreasing it.

 

V I E W P O I N T
The Voodoo of Dubya-nomics
Michael Kinsley on why Bush's tax-cut bill doesn't make sense even by its own logic
By MICHAEL KINSLEY
Wednesday, May. 28, 2003
When Congress passed President Bush's tax bill last week, it had all the major elements he wanted: an immediate general income-tax-rate cut, a big tax break for dividends (plus another for capital gains he didn't request), and new deductions for small businesses. The total cost over 10 years, $350 billion, is less than half the $726 billion Bush asked for, but much of the gap is accounting tricks. The President need not worry that this bill won't cost enough.

Bush's victory is intellectual as well as political. This bill reflects an extraordinary, even radical shift of the tax burden from the rich to the middle class. And in the weeks leading up to the bill's passage, Bush made a remarkably detailed and sophisticated case for it, most notably in Albuquerque, N.M., on May 12. Detailed, sophisticated and wrong — which makes his victory all the more impressive.



Here is Bush's case in brief. It begins with a little history. When he took office, he said, "we were in a recession," but "it looked like we were kind of starting to come out." Then came 9/11. After that came revelations that major corporations had "cooked the books." Although "we're overcoming" these setbacks, he noted, "too many of our people aren't working. We're growing, but we're not growing fast enough." And how does he account for the deficit? "We have got a deficit because this economy went into a recession," and "we have got a recession because we went to war. And I told the American people...we're going to spend whatever money is necessary to make sure we win." In other words: Don't blame me for a weak economy.

To solve the problem, Bush called for a plan based on this principle: "If your economy is too slow, you need to increase demand for goods and services." Increased demand leads to new jobs. And the most efficient way of creating new jobs is to "focus on small business" because "small-business owners" create the most jobs. Most small businesses don't pay corporate income tax. Instead, their profits are treated as income to their owners. So cutting ordinary income-tax rates is "really pumping capital into ... small business." The new tax bill also quadruples, to $100,000, the amount a small business can deduct each year for new equipment. Bush called this limit a "cap on investment."

How else do you help the little guy? You eliminate "the double taxation of dividends," said Bush, because that will boost the stock market, thereby "helping our average citizens realize wealth." (Ultimately, Bush had to settle for halving the top rate for the dividend tax.) All in all, he says, accusations that his plan "only helps the rich" are "just empty rhetoric."

So what is wrong with all this? In a nutshell, it doesn't make sense even in its own terms.

Start with the history. Can the weak economy be blamed on Bush's predecessor, on al-Qaeda, on Enron? A recession, as Bush says, "mean three quarters of negative growth." The economy grew through the end of 2000, then growth turned negative in the first three quarters of 2001, including three weeks of Clinton and more than eight months of Bush. That is what allows Bush to say he inherited a recession.

But growth turned positive in the last quarter of 2001, beginning Oct. 1, so it is bizarre to blame the recession on the events of 9/11--which occurred 19 days before the recession officially began to turn around. It is even more bizarre for Bush to blame the recession on money spent fighting the war on terrorism. War spending is historically a way out of a recession, not into one.

What Bush describes as his key principle is a classic if crude statement of Keynesian theory. A tax cut works, he said, by putting more money into people's pockets — which they will spend and thus create jobs. For 25 years, Republicans have sneered at this as "demand-side" economics. If Bush now embraces it, he ought to remember the corollary: that a tax cut should go mainly to low-income people, who are more likely to spend it. And the President should stop pretending he regrets the huge deficits his tax cuts produce. Deficits are essential to a demand-side stimulus. If he cut government spending to pay for the tax cuts — which he is not even attempting to do — this would reduce demand as much as the tax cut would increase it.

Of course, everyone loves a stimulus. In his push for a larger, quicker tax cut, Bush asked, If a $350 billion stimulus is good, why isn't a $750 billion stimulus even better? If tax cuts are good in seven years — his previous tax bill phased in cuts over a decade — then why not more now? Here is a question for him: If a stimulus is always good, and the bigger the better, why have taxes at all? Why not finance the entire government on borrowed money? Once you acknowledge that this won't work — that a stimulus can be too large or badly timed — you can start thinking about how to tell a good stimulus from a bad one. President Bush has yet to begin that journey.

Bush creates a straw man: the critic who says his plan "only helps the rich." The actual criticism is that it mainly helps the rich. The much smaller tax breaks for lower-income people are vital too. They provide cover and act as a bribe. For a few hundred dollars, the government buys your support for a plan worth millions to those who already have millions.

This is the traditional Republican supply-side aspect of Dubya-nomics: you help the poor by helping the rich. In particular, Bush justifies cuts in top-bracket tax rates by noting that they will benefit the small-business owner. That they will. But a lot of top-bracket taxpayers are not small-business owners. So even under the dubious premise that small-business owners are delicate flowers that must be fertilized with extra-rich tax goodies, a general tax cut for the rich is a weird way to go about it.

Bush also makes it sound as if small businesses currently get no tax deduction for anything they spend in excess of $25,000 a year on equipment. In fact, just like big businesses, they can depreciate as much new equipment as they wish. That means spreading the deduction over the years the equipment is helping produce income, under standard accounting principles. Allowing the immediate deduction of all those equipment costs amounts to a subsidy. Only small businesses get it.

The President's argument for eliminating the tax on corporate dividends — he is settling for a cap of 15%--is also disingenuous. Because companies pay the corporate income tax, taxing shareholders' dividends is "double taxation," he says. But the corporate income tax has brought in a declining share of federal revenue for decades, as corporations are granted deductions and discover loopholes. And if taxing the same income twice bothers the President so much, why doesn't he start with ordinary working wages, which are subject to both the income tax and payroll taxes for Social Security and Medicare?

Bush's other rationale for cutting the tax on dividends is that this would be good for the stock market. Share prices would rise, and millions of ordinary investors would have more money to invest or spend. This line of reasoning adopts another aspect of classic Keynesianism: the money illusion. The idea is that when people feel richer, they spend more, which helps the economy, which makes them richer for real. Today's conservative economists, when they are not serving in a Republican Administration, tend to be skeptical of such magic. They would say that unless investors are morons, which they aren't, a dollar added to the return on stocks (because the government has forgone a dollar of taxes on dividends) isn't going to raise the total value of stocks more than a dollar. In terms of bang for the buck, it's a costly way to go about a general economic stimulus. And though Bush emphasizes small investors, big investors will benefit most.

In a fascinating aside during his Albuquerque speech, the President mocked the "new economy," in which "folks said, Would you invest in my company, because the sky is the limit?" even though "nobody seems to be buying my product." The notion that pressure to pay dividends could reduce the risk of another stock bubble like the one that burst in 2000 is not crazy. But Bush's puritanical critique of the "new economy" is an odd fit with his central theme that we need tax cuts because it is too hard for entrepreneurs to raise capital. He describes the "new economy" as a world of easy capital for anyone with a song and dance, sustained by "pie-in-the sky pronouncements." Funny, it sounds a lot like the bill Congress placed on his desk last week.

The New Tax Law
Lower tax rates on income, dividends and capital gains, plus increased child tax credits, could mean more money in your pocket

--Single, no children

Household income -- 2003 tax (old law) -- 2003 tax (new law) -- Your saving
$41,000 -- $5,221 -- $5,010 -- $211
$63,000 -- $8,426 -- $7,875 -- $551
$170,000 -- $34,845 -- $32,102 -- $2,743
$530,000 -- $144,380 -- $131,542 -- $12,838

--Married, two children under 17

Household income -- 2003 tax (old law) -- 2003 tax (new law) -- Your saving
$41,000 -- $1,303 -- $95 -- $1,208
$63,000 -- $3,547 -- $2,447 -- $1,100
$170,000 -- $27,901 -- $24,753 -- $3,148
$530,000 -- $138,859 -- $125,417 -- $13,442

*Assumes varying amounts of dividend and capital-gains income, from $1,000 for households making $41,000 to $30,000 for households making $530,000, based generally on IRS data. Most provisions take effect for tax year 2003; some child tax credits will be paid this year. Source: Deloitte & Touche

 

http://www.washingtonpost.com/wp-dyn/articles/A55706-2003May29.html?nav=hptop_tb

Late Deals Got Tax Cut Done
With Deadline Looming, Negotiators Kept Cost at $350 Billion

By Jonathan Weisman
Washington Post Staff Writer
Friday, May 30, 2003; Page A05


Multinational high-technology companies, rural health care and millions of poor children were among the losers in the negotiations last week as Republican lawmakers completed their $350 billion tax cut plan by the White House's Memorial Day deadline.

Mammoth sport-utility vehicles, well-heeled corporate executives and Bermuda-based corporations were among the winners.

In the mad dash to reconcile the Senate's and House's competing versions of the tax cut, provisions large and small washed out of the final bill, while last-minute efforts to close loopholes failed under deadline pressure. As details emerged, Democrats renewed their criticism of the tax bill signed into law Wednesday, while Republicans continued to trumpet their success.

"While the Republicans' tax break leaves no business behind, it leaves behind millions of children from working poor families," Rep. Nancy Pelosi (Calif.), the House Democratic leader, said yesterday in a prepared statement. "Faced with a choice between giving a tax break to an elite few or helping millions of working families, the Republicans once again chose to help their wealthy friends."

"This administration treats taxpayers fairly," White House spokesman Ari Fleischer said yesterday. "This administration treats taxpayers right."

Perhaps the highest-profile victim of negotiations between House and Senate Republicans and the White House was a Senate provision that would have extended the child tax credit to working families on the edge of poverty. Because the provision did not survive, 8 million children will get no additional benefit from the tax bill, and another 4 million will get only a limited benefit, according to the Center on Budget and Policy Priorities, a liberal think tank.

Congress approved President Bush's proposal to immediately raise the $600 child credit to $1,000, which otherwise would have happened slowly over this decade. But Bush did not urge acceleration of another provision of the 2001 tax cut that in 2005 will increase the size of the child credit for low-income families that pay little or no income tax, and neither did the House.

The Senate bill included a low-income child credit provision that would have benefited families with annual incomes from $10,500 to $26,625, at a cost of $3.5 billion. It was dropped to help squeeze the House-passed tax cut down to the size -- $350 billion through 2013 -- that could win final approval in the Senate, said Christin Tinsworth, spokesman for the House Ways and Means Committee.

"Adjustments had to be made," she said.

That was not the only adjustment. Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) lost a provision he has long advocated that would have changed Medicare reimbursement formulas to benefit rural hospitals and doctors. Rural lawmakers have long complained that Medicare formulas were driving health care providers out of their communities, but House negotiators chucked the provision, deriding it as "pork."

Also dropped was a Senate-passed measure -- pushed hard by high-tech companies -- that would have allowed corporations to return earnings from overseas at a tax rate of 5.25 percent, instead of the regular corporate tax rate of 35 percent.

House members lost another corporate perk, a $15 billion provision that would have allowed companies to use current losses to reduce tax liabilities as far back as five years. Companies can now "carry back" losses only two years, but since many companies began losing money only after Sept. 11, 2001, a two-year limit is of no help, since they have not had to pay taxes during that time.

But big business had its share of victories in the negotiations. Senate tax writers had said they would try to close a loophole in the Senate and House bill that would make the biggest luxury SUVs tax deductible for small businesses. But the loophole survived, in part because House Republicans wanted it to, and in part because tax aides did not have time to draft language that would allow businesses to deduct the cost of heavy pickup trucks from their taxes but not the cost of Cadillac Escalades, a Republican tax lobbyist said.

Perhaps the biggest break for business was what did not make it into law. To offset the cost of the tax cut, senators included provisions to crack down on abusive corporate tax shelters, combat some accounting scams such as those pursued by Enron Corp., prevent U.S. companies from moving their headquarters to post office boxes in offshore tax havens such as Bermuda and limit grossly inflated deferred compensation plans for corporate executives.

Last year, at the height of the corporate scandals, such measures appeared unstoppable. But more than a year after Enron's implosion, none of them became law. This time, House negotiators tossed them aside, saying they would not agree to any provisions that could be called tax increases. That came as a relief to business lobbyists who mobilized to kill the measures.

"The things that mattered most were all the things that didn't get in," said a Republican tax lobbyist. "That kind of stuff really matters."


© 2003 The Washington Post Company

 

Middle Class Tax Share Set to Rise
Studies Say Burden Of Rich to Decline



By Dana Milbank and Jonathan Weisman
Washington Post Staff Writers
Wednesday, June 4, 2003; Page A01


Three successive tax cuts pushed by President Bush will leave middle-income taxpayers paying a greater share of all federal taxes by the end of the decade, according to new analyses of the Bush administration's tax policies.

As critics of the tax cuts in 2001, 2002 and 2003 have noted, the very wealthiest Americans -- those earning $337,000 or more per year -- will be the greatest beneficiaries of the changes in the nation's tax laws. And, as administration officials have argued, low-income taxpayers will also enjoy a disproportionately lighter tax burden.

The result is that a broad swath of lower-middle, middle- and upper-middle-income people, as well as some rich Americans, will carry a greater share of the federal tax burden after the laws passed in the past three years are fully implemented. While taxes are scheduled to decline for all income groups, those earning more than $28,000 but less than $337,000 will end up paying a greater share of the taxes than they did before the changes.

The findings, by two groups that have been critical of the Bush administration's tax policies, add a new wrinkle to the increasingly contentious debate over the fairness of Bush's tax policies and which income groups would benefit most.

Liberal groups have argued that the Bush administration is penalizing the poor while rewarding the rich. In part to answer those critics, Republicans have targeted the poor with expanded tax refund checks for families with children, a new 10 percent tax bracket and a larger earned-income credit for married couples who are poor.

The result may be a surprise to both sides: By the end of the decade, the middle class will be picking up a greater share of the government's tab.

"It's hard to get a lot of progressivity at the very top," said R. Glenn Hubbard, the architect of Bush's most recent tax cut proposal and a former chairman of the White House Council of Economic Advisers. By slashing taxes on dividends, capital gains and inheritances, the cuts ensure that tax burdens will no longer rise consistently with income, as they would with a perfectly "progressive" system. "But," Hubbard added, "we've very much retained progressivity overall because so much money was dumped into the bottom rates."

The two studies focused on separate issues. Citizens for Tax Justice examined the percentage changes in total federal taxes that would be paid by different income groups through 2010. The Tax Policy Center, jointly run by the Brookings Institution and the Urban Institute, looked at the share of federal taxes that would remain for the various groups once those changes are fully phased in. But the studies reached similar conclusions.

Citizens for Tax Justice found that for the lowest fifth of taxpayers -- those earning below $16,000 -- federal taxes would fall 10 percent between now and 2010, while federal taxes for those in the second quintile -- earning between $16,000 to $28,000 -- would fall 12 percent. At the other end of the scale, the decline for the top 1 percent of taxpayers -- those making $337,000 and up -- would be 15 percent.

In contrast, for taxpayers earning between $45,000 and $337,000, the decline would be 7 percent, less than half the cut reaped by the very wealthy.

Citizens for Tax Justice assumed that those provisions in the tax laws scheduled to expire before 2011 would expire as scheduled, although administration officials have said they are determined to make those changes permanent.

The Tax Policy Center assumed that all proposed tax cuts would become permanent. It found that the share of federal taxes paid by the top 1 percent of taxpayers would drop to 22.8 percent of the total in 2011, from 24.3 percent today, while the share paid by the lowest 40 percent would fall to 2 percent, from 2.2 percent.

All others would have a slightly larger proportion of the federal tax burden in 2011 than they do today. For families earning between $22,955 and $80,903, their share of federal taxes would rise from 25.5 percent to 26.1 percent.

Both groups included all federal income, payroll, corporate and estate taxes; Citizens for Tax Justice also included excise taxes.

Treasury Department officials said the studies are skewed because they include Social Security and Medicare payroll taxes, which the tax cuts did not seek to reduce. Pamela F. Olson, the assistant Treasury secretary for tax policy, said that if Social Security taxes are included, then Social Security benefits should also be measured. "Then you would have a very progressive system," she said.

Instead, Olson pointed to the Treasury's analysis of the impact of successive tax cuts on individual income taxes only. In that analysis, all taxpayers with less than $100,000 in income are shown to be paying a smaller percentage of their income in taxes than they did before Bush took office. Households earning $100,000 or more are now paying 73.3 percent of federal income taxes, up from 70 percent.

Figuring out whether tax policy benefits the wealthy or the poor is a hotly disputed subject. Liberals favor a progressive tax system in which households pay higher tax rates and a higher share of their total income as they climb up the income ladder. By that measure, the Bush tax cuts have made the tax code less progressive. By 2011, the poorest taxpayers' after-tax income will have risen only 0.3 percent, according to the Tax Policy Center, while household income for the richest 1 percent of taxpayers will have jumped 8.6 percent.

Conservatives say the better measure is which group winds up paying a greater proportion of the tax burden after the tax cut. The rich may get the largest dollar benefit from the tax cuts, but the top 20 percent of households will still be paying 71.5 percent of all federal taxes in 2011.

Conservatives and liberals alike agree that Bush's tax policies have shifted more of the tax burden to the middle class. Kevin Hassett, a conservative economist with the American Enterprise Institute, said it "makes complete sense" that this would happen as a result of Bush's polices.

Changes such as the elimination of the estate tax and the reduction of the stock-dividend tax disproportionately benefit the wealthiest 1 percent, who have the largest amount of assets and capital. Those at the other end of the income spectrum benefit disproportionately from targeted tax cuts such as the child tax credit.

With the biggest gains going to the wealthiest and to low-income taxpayers, those in the middle inevitably get a higher tax burden because they don't qualify for the targeted tax breaks that go to the poor or the investment-related tax breaks that go to the wealthy. "The middle class is predominantly labor income," Hassett said.