Monday, June 02, 2003
Bush's tax cut: I've been asked by a few people to comment on the $350 billion tax cut passed recently by the Congress. Specifically mentioned was the concern in many reports last Thursday that poor families would not be eligible for the larger child tax credit.
A careful reading of the reports reveals why these families don't receive the full credit:
Families with incomes lower than $10,500 will also not get the refund checks, but under the 2001 tax revision, they would not have been eligible for either the $600 or the $1,000 child tax credits because they do not pay federal tax. [emphasis added]
Now, as heartless as it may seem, there's a principal here that the GOP is sticking to, namely that the tax code should not be used to redistribute wealth -- which is what this disputed provision would have done.
Will this tax cut help the economy? I think any tax reduction that results in more money in people's pockets is a good thing. Whether this is the best way to give the economy a boot -- I doubt it. Seldom does the government do anything the "best way."
Does the tax cut favor the very wealthy? Yep. They pay most of the taxes -- any meaningful tax cut will let them retain a larger share of the pie.
Could the final tax cut have been even more growth-oriented? Yes. I think that skewing the tax cut to the middle class would have been best -- and I'm not just speaking out of personal interest. Skewing the tax cut to the poor -- who don't pay taxes anyway -- would have been a bad idea. Skewing it to the rich, while a key tenet of supply-side theory, may not get you the most bang for your buck when the goal is to increase consumer spending to get companies to hire more workers to meet the demand.
As for the Democrats, both the party as a whole and the presidential hopefuls, have shot themselves in the collective foot on this issue. They complain that the tax cut favors the rich, but fail to get behind a credible alternative and really push it. The Democrats' tax plan is like Bush's only with the redistribution of wealth.
The Democrats would have prompted a real debate had they unveiled a plan that included: a payroll tax holiday; elimination of the double-taxation on Social Security, and elimination (not just "relief) of the marriage penalty.
The real problem, however, is the fact that the Democrats aren't serious about tax relief. Their plan was a simple CYA maneuver -- as their presidential hopefuls have repeatedly pointed out with their desire to repeal the Bush tax cuts (i.e. raise taxes) to pay for various federal programs.
If Republicans didn't control the Congress and the White House, there would be no debate about tax cuts -- the issue wouldn't even be on the table. Democrats aren't interested in lowering taxes. In 2004, the Democratic nominee will have another Mondale moment. In that race, 20 years earlier, Mondale suffered a crushing defeat, in part because of his claim that " Mr. Reagan will raise taxes, and so will I. He won't tell you. I just did."
Bush's tax cuts aren't perfect, but they're better, and more substantial, than anything the Democrats would ever produce.