A Taxing Debate
Just escaped from that long, sad line at the Post Office, where you finally mailed in your tax return? Or did you follow George W. Bush's example and file for an extension?
"I can't think of a better day than tax day to say that if I become president, I look forward to sharing some of that money with the people who pay the bills," the Texas governor proclaimed at a made-to-order event in Bentonville, Arkansas. He was there to tout his five-year, $483 billion tax cut, a linchpin of his campaign agenda
Vice President Al Gore spends far less time discussing his tax program and far more time criticizing Bush's plan as a "risky tax scheme." Gore is calling for a much smaller cut of about $250-300 billion over five years.
The sprawling Bush plan scraps the current five income tax rates (of 15 percent, 28 percent, 31 percent, 36 percent and 39.6 percent), and replaces them with four rates (10 percent, 15 percent, 25 percent and 33 percent). Since he'd raise the income threshold for paying taxes, he says six million families would stop paying income taxes altogether, and everyone else would receive a round of cuts. "The lowest income taxpayers would get the largest percentage reduction in tax liability," says Dr. J. D. Foster, the executive director of the Tax Foundation, "but everyone would get a tax cut."
Critics complain Bush's plan favors the rich. Citizens for Tax Justice says two-thirds of his tax breaks would go to the wealthiest 10 percent of Americans, and that the bottom 20 percent would end up with a cut of only about $43 a year.
The point is, since lower income Americans don't pay as much, the cut wouldn't mean as much to them. It's true that the Bush tax plan "would leave the tax code more progressive than it is now," as Foster maintains, but it's the wealthier Americans who pay the bulk of taxes, so any tax cut translates into more money for them. "There's no question," Foster admits, "that the upper income tax payers get significant tax relief. In dollar terms, it comes to some fairly large numbers."
Speaking of fairly large numbers, there are people who argue that $483 billion doesn't begin to describe how much Bush's plan would really cost. Because its changes would be phased in slowly, they argue, stating the cost over five years is disingenuous; you need to look at what it costs over 10 years, when all the changes are in place. And that figure, Citizens for Tax Justice says, is about $1.7 trillion, thanks in part to increased interest payments on the national debt.
A cost of $1.7 trillion is "much, much larger than any reasonable estimate of what the budget surplus is going to be, by aleast a trillion dollars," warns Bill Gale, a senior fellow at the Brookings Institution.
Gore's proposal, by contrast, is small and targeted, and there's nothing so bold as a re-jiggered tax rate system. "It's essentially a zero tax cut," says Foster, because its limited cuts are offset by tax increases. Gore hasn't fleshed out his tax ideas as thoroughly as Bush, but his plan closely follows the one proposed by President Clinton.
"The basic notion is to allow certain tax cuts, as long as you do what we think you should do with the money," according to Foster. He's referring to Gore ideas like "lifelong learning accounts," where the government would match 50 percent of your yearly contribution to pay for further schooling or training. And Gore suggests a $1,000 tax credit to help pay for long-term care, and wants to increase the Child and Dependent Care tax credit.
Part of the reason Gore is so cautious with tax cuts is because he'd rather pay down the national debt. "That's why we have running surpluses," insists Bob McIntyre, from Citizens for Tax Justice. As long as you keep paying down the debt, then it keeps interest rates low, and that creates surpluses. But not everyone takes that argument seriously.
"It's not a question of leaving the money in Washington so we can pay down the debt, because that's not going to happen," argues Foster. Both Republicans and Democrats are adept at spending money, and Bush argues that's what's risky. There's a Reagan-esque note to that argument, and to a plan that gives wealthier Americans more cash on hand. As Bush said Monday, "giving people their own money back encourages growth."
Of course, Republicans think it's always a good time to cut taxes. But some people, like Alan Greenspan, think the economy's a little overheated just now and doesn't need any more stimulation. "If the Fed raises interest rates to offset increased consumer spending, that could plunge the economy into recession," Gale observes.
The irony, of course, is that most Americans don't seem too interested in the whole issue. Polls show taxes land low on the list of national concerns for most voters. But there is one point on which most voters - and even most analysts - agree, regardless of whether they support Bush or Gore. And it's a point neither candidate is addressing.
"The fact is, the tax code is outrageously complicated," says Foster. Gale concurs: "Everybody agrees the tax system should be simpler, and yet nobody is proposing a massive simplification program."