While George W. Bush gallivants about Europe this week in search of a little diplomatic respect, the conversation about how to fix his cockamamie tax bill goes on stateside. It ain’t over till it’s over, Yogi Berra famously said, but for the tax measure Bush signed into law last week, it ain’t over even well after it’s over.
Adoption of the Bush tax plan was a reasonably straightforward enterprise: Congressional Democrats mustered a fair bit of oppositional magniloquence, and the Jeffords defection was an entertaining diversion, but in the end Bush and the GOP delivered oversized tax relief with little more than token resistance. Still, given the bill’s many contortions of timing and other flaws, and considering the Senate shift to Democratic control, the enacted measure clearly remains a work in progress. And so even as tax rebate checks are “in the mail,” as Bush and his minions have smugly reminded us at every opportunity, the battle over tax policy lives on.
The arresting aspect of the tax bill has always been its tilt toward the rich. The numbers are by now hauntingly familiar: More than 70 percent of tax cut dollars accrue to the top 20 percent of earners, and over 37 percent to the top 1 percent. The very fact of this tilt certainly wasn’t unexpectedBush has been pushing decidedly unprogressive tax reform ever since he first floated big tax cuts on the campaign trail last year.
The intriguing thing is that it has aroused so little in the way of broad, passionate objection within the American electorate. Sure, outspoken progressives have railed consistently against the GOP-backed tax cuts, and aiming a spotlight at the wealthy beneficiaries of Bush’s tax proposals was one of the few things Al Gore did reasonably well in his otherwise feckless campaign.
But interestingly, this vocal critiqueboth Gore’s last year and that of congressional and interest-group liberals this yearhas lacked traction. The vast majority of American households are not wealthy and benefit tangibly from our fiscal tradition of progressive taxation. So why was it so easy, in the final analysis, for the Bush administration to push through tax cuts that are so wantonly skewed toward the investor class?
Much of the explanation lies in the Republicans’ practiced mastery of the politics of conspicuous denial. Insist enough times that the sky isn’t really blue, and eventually people start to believe it. Tax cut enthusiasts have simply and repeatedly (with a straight face) repudiated the essential truth that Bush’s tax cuts were assembled primarily with high-income taxpayers in mind.
Consider the thinking of Americans for Tax Reform (ATR), a Washington policy organization headed by influential Bush administration lapdog Grover Norquist. An ATR policy brief earlier this year insisted that the Bush tax plan is actually “tilted towards low- and moderate-income taxpayers.” The logic behind this claim is that cuts in marginal income tax rates are proportionally smaller for higher-income households than for lower-income households. This is accurate for some (but not all) brackets: The relative magnitude of the cut in marginal rates is bigger for those in the 15-percent tax bracket than for those in the current 39.6-percent bracket.
A related argument is that the level of tax relief is proportionally lower for high-income taxpayers, implying that lower-income earners are actually getting more of a break. The congressional Joint Committee on Taxation, for instance, projects that taxpayers earning between $20,000 and $30,000 will have their taxes cut more than 11 percent over the next five years, compared with only 6 percent for those earning over $200,000.
These factoids, even if literally true, are fundamentally dishonest as the basis for policy because they pull tax burdens completely out of their broader analytical contextongoing patterns of income growth and inequality across the economy. Here again, the numbers are all too familiar: In the 10-year period ending in 1998, according to an analysis by the Center on Budget and Policy Priorities using IRS data, after-tax income of the top 1 percent of earners rose 40 percent, while the bottom 95 percent of taxpayers saw their after-tax income rise only 6 percent.
The Bush tax plan will magnify the already disturbing level of income and wealth inequality in the United States. By funneling so many more dollars to high-income earnersan average tax cut of almost $8,000 to the top 10 percent, compared with less than $350 to the bottom 60 percentthe tax cut was plainly crafted to exacerbate the nation’s unprecedented economic gap between rich and poor. It will come as no surprise that this aspect of fiscal policy is not prominently featured in GOP tax-cut discourse.
The tax-cut crowd has also seriously misrepresented public support for this sort of thing. A GOP spokesman recently described tax cuts as “hugely popular, not just with Republicans but with families all across the country.” Yet in a national Gallup poll last month, only a quarter of respondents thought that a big tax cut would “help the economy a lot,” and fully half thought it would either make little difference or actually hurt the economy. Only 37 percent thought a tax cut would help themselves and their families “a little” or “a lot.”
The Gallup poll did find about two-thirds of Americans favoring rather than opposing a substantial tax cut. But an even higher proportion74 percentfavored bigger tax cuts for lower- and middle-income taxpayers, and smaller tax cuts for upper-income earners. And the numbers are even more revelatory when people are asked about priorities requiring the kind of spending that large tax cuts may well preclude. A Pew survey earlier this year found that paying off the national debt was labeled a “top” or “important” priority by 86 percent of respondents; adding prescription drug benefits to Medicare, 92 percent; making Medicare financially sound, 95 percent; improving the education system, 95 percent; dealing with the problems of poor people, 91 percent. As Democratic pollster Geoff Garin quipped, the voters favor tax relief “except in comparison to almost anything else.”
In the months to come, newly emboldened Democrats in Congress may seek to undo some of the tax bill’s worst excesses. But supply-siders and other conservative taxophobes will want to go further. As The Wall Street Journal’s Robert Bartley put it last week, “In my world a government surplus is ipso facto proof that taxes are too high.” Next in the crosshairs could well be capital gains tax rates. Temperate conservatives will argue that short-term capital gains ought not be taxed at a higher rate than long-term gains. Alan Reynolds of the libertarian Cato Institute says this distinction amounts to “abusing tax policy to distort the timing of asset sales.”
The harder-core may well reprise efforts to eliminate all capital gains taxes. They will contend, speciously, that with more and more Americans invested in mutual funds and retirement accounts, capital gains taxes hit middle America, not just the rich. As usual, the facts tell a different story. An analysis by the group Citizens for Tax Justice shows that in 1999, households earning more than $100,000the top 8 percent of earnerspaid more than 91 percent of all capital gains taxes. People earning under $50,000 paid less than 2 percent of all capital gains taxes.
The still unfolding story of tax reform in 21st-century America is an ongoing tale of greed and regressivity, peppered with a subplot of class warfare. Confronted with a relentless GOP public relations campaign against tax fairness and common sense, the Democratic party has been abjectly ineffective at making a persuasive case for enlightened alternatives. It’s clearly not enough merely to denounce tax reform that skews toward the prosperous. Democrats need to draw their natural working- and middle-class constituencies into a far more substantial and cohesive coalitionone that rejects the plutocratic sophistry of modern economic conservatism in favor of fiscal policy predicated on a solid foundation of economic justice.
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