Bush's Sleights of Hand

The Progressive magazine , July 2003

George Bush's new tax law is one of the most brazen redistributions of income to the wealthy that this nation has ever seen. Bush sold it with unsurpassed gimmickry and the smarmy disregard for truth that so characterizes his Administration.

When he signed the Jobs and Growth Tax Reconciliation Act of 2003, Bush said, "Today, we are taking essential action to strengthen the American economy." But his tax plan threatens the long-term health of the economy. He talked about how his plan would help working people, families with children, and seniors, but he didn't state the obvious fact: that the rich would make out like bandits because of the reduction in the taxes on dividends and capital gains.

In the next four years, the top 1 percent of Americans-those making $337,000 a year or more-will get, on average, tax breaks worth $103,899, according to Citizens for Tax Justice.

The bottom 20 percent-those making under $ 16,000-will get all of $45 over the four-year period.

The next 20 percent-those between $16,000 and $28,000-will get a total of $299.

The next quintile-those between $28,000 and $45,000-will get $811.

This 60 percent of the population will get only 8.5 ) percent of the tax benefits, whereas the top 1 percent will reap 38.9 percent.

And this tax package will not help all Americans: More than one-third of U.S. households won't get any tax break whatsoever, and more than one-half of U.S. households will get less than $ 100, according to the Tax Policy Center. Households in the bottom 20 percent will get an average tax cut of $ 1, the group estimates.

Bush misled the American people by exploiting the word "average" when he described the benefits of his plan. "Ninety-one million taxpayers will receive, on average, a tax cut of $1,126," he said. But since averages throw in the benefits that the richest will receive with everyone else's, Bush's statistic is almost meaningless. Actually, "83 percent of households will get less than the average amount cited by the Administration," the Center on Budget and Policy Priorities found.

Then there's Bush's claim to be helping single moms. Here's what he said: "Altogether, thirty-four million families with children, including six million single moms, will receive an average tax cut of $1,549." According to the center, "For single women with children, 58 percent will receive less than $100, and a majority will receive no benefit whatsoever from the package."

Only after Congress passed the bill did the full dimensions of its class bias become known. "The final agreement is, in fact, tilted against lower income working families with children," says the Center on Budget and Policy Priorities. The bill "accelerates all of the child tax credit and marriage penalty relief provisions for the 2001 tax-cut legislation that benefit middle and upper income families, while failing to accelerate either" for low and moderate income working families.

Look at the child credit. Bush, Dick Cheney, and the GOP leaders in Congress aced out poor families from receiving a child credit. Democrats wanted every family to get a child credit. But the Republicans not only refused to give a child credit to those earning less than $10,500 (who weren't receiving such a credit before, because they earn too little to pay income taxes), they also prevented those earning between $10,500 and about $26,625 from getting a bump in their credit.

Most middle class families had been getting a $600 child credit and will now get a $1,000 child credit. But the poorest families will get no benefit at all, and the next group will be eligible for only $600 at most.

Why? Because at the last minute, the Republicans who hammered out the final draft of the legislation decided to freeze those families making between $10,500 and about $26,625. By stiffing this group, Republicans saved $3.5 billion out of a package that ended up at $350 billion. As a result, more than six million families, including twelve million children, lost out.

So there you have it. They couldn't squeeze out a measly ] percent more for needy families because they were so intent on rewarding the unneedy.

"I guess this shows us what our priorities are," Senator Blanche Lincoln, Democrat of Arkansas, told The New York Times.

It shouldn't have been hard to find $3.5 billion. The Republicans could have reduced the top rate to 35.3 percent instead of 35 percent for the first three years, and that would have done the trick, as the Center on Budget and Policy Priorities notes. Or they could have gone after corporate tax shelters. Actually, the Senate bill did just that, with a potential savings of more than $25 billion, but the Republicans somehow managed to drop all of the provisions curbing these corporate tax dodges, the center noted.

In making the tax law, Bush and the Republicans made choices. And they consistently chose to side with the wealthy and the corporations.

When, as now, the economy is soft and the risk of deflation is serious, cutting taxes makes some sense. But giving tax breaks to the rich is a very inefficient way to get the economy going. As Warren Buffett, one of the richest men in America, said in The Washington Post, "Putting $1,000 in the pockets of 310,000 families with urgent needs is going to provide far more stimulus to the economy than putting the same $310 million in my pocket.

The reason: They would go out and spend that money on items they've been postponing purchasing, like dishwashers, washer-dryers, computers, fridges, TVs, and cars. If consumers increase their buying of these big-ticket items, the economy will take off. Warren Buffett probably already has all the TVs and dishwashers he needs; he's most likely to save most of his tax break, not spend it. And what the economy needs now is for consumers. to spend.

As Jonathan Chait points out in The New Republic, "Bush's plan is wildly inefficient as economic stimulus. In order to pump some money into the economy today, it would require hundreds of billions of dollars in long-term revenue loss." He cited a study by Economy.com that showed that Bush's original proposal of eliminating the tax dividend would have produced "a pitiful nine cents of growth for every dollar in revenue loss."

Long term, while the price tag of this tax package is marked as $350 billion, it is more than likely to cost between $800 billion and $1 trillion, according to the Center on Budget and Policy Priorities. The bill was loaded with unprecedented sunset clauses that Republicans are already vowing to repeal.

The enormity of these tax cuts will make the budget deficit balloon, which will ultimately force up interest rates, and rising interest rates can strangle the economy.

But for Bush, that doesn't matter too much, since his reelection campaign will have long since been concluded by then.

Ironically, Bush could have tailored the tax cuts to be much more advantageous to the economy in the short term, but the reflexive urge to reward his friends at the country club and on the Business Roundtable seemed to overwhelm even his own political bottom line.

"You never know what the mix of ideology and greed there is with these people," says Dean Baker, co-director of the Center for Economic and Policy Research. "The people who are calling the shots are just grabbing everything they can."

They may think that even Bush's cockeyed plan will provide enough of a boost. "It will be an ineffective stimulus, but not - totally ineffective," says Jared Bernstein of the Economic Policy Institute. "The Bush Administration is giving $200 billion in tax cuts in the next two years, and it's hard not to get some kind of economic growth out of that. By the time the election hits, the economy will probably be growing again, possibly at a good clip." According to The Wall Street Journal, the tax plan "should add about a half a percentage point to the economy's annual growth rate in the second half of this year and another half to a full percentage point next year, pushing the economic growth rate-barring unhappy surprises-to between 3 percent and 4 percent over the next eighteen months."

Senator Kent Conrad, Democrat of North Dakota, had it right when he said the tax cut is "irresponsible as fiscal policy, it is ineffective in stimulating the economy, and it is utterly unfair.... It drives us deeper into deficits and debt that will not encourage economic growth but will hurt it." These huge budget deficits, however, serve an ideological purpose for Bush: to justify shrinking spending on social programs. "We must hold federal spending to a responsible level," Bush said with a straight face when he signed the tax bill, even though he is the one responsible for increasing federal spending so lavishly on defense.

The deficits that he has created will give him a handy excuse to say no to anything the Democrats might offer to address the crying needs of this country.

Says Bernstein: "Bush's tax plan does a bad job at its stated goal of economic growth and job creation, but a fine job at its unstated goal, which is reducing government revenue and shifting taxes away from capital."

The problem is, the economy is in such weak shape today that Bush's shenanigans could do acute damage. Even Federal Reserve Chairman Alan Greenspan is worried about deflation, which could send the economy spiraling downward, after spending a lifetime chasing the dragon of inflation.

On the wages front, the news is grim. "In the first three months of 2003, median weekly earnings adjusted for inflation fell 1.5 percent," said Time magazine. "That's the biggest drop since 1991." Time calls it the "no-raise economy." And this, while the economy is supposed to be in recovery.

The job picture is no prettier, with the official unemployment rate at (; percent, and the actual rate-counting so-called discouraged workers, who no longer are seeking jobs and thereby don't qualify as officially unemployed- is even higher.

"Companies are continuing to shed jobs at a furious pace-525,000 non-farm payroll positions in the past three months alone," The Wall Street Journal reported on May 29. More than two million workers have lost their jobs since March 2001, and the "total number of people unemployed . . . is about 9.2 million," the Journal states. "In short, the U.S. is experiencing the most protracted job-market downturn since the Great Depression."

For many of the unemployed, "it has been excruciatingly difficult to get work again," says the Journal. "Job searches are dragging on long after their unemployment benefits have expired and they have plowed through their savings. In the last year, nearly 2.8 million people have exhausted unemployment benefits."

The fiscal crisis of the states will only exacerbate the negative job and wage picture. States are facing a severe budget crunch this year and are making painful cuts in employment and services.

"The cumulative effect, next fiscal year, will be nearly 1 percent of total GDP," economics professor James K. Galbraith wrote in The Nation. "That is quite enough to bring on another bad year for the economy as a whole.... In the following year, things could be even worse."

Bush's tax plan does give $20 billion to the states over the next two years, a concession to Congressional Democrats.

"But that's a drop in the bucket," says Baker. "The states collectively face a deficit for the next year of $80 billion." In addition, he says, the tax cuts will wipe out about a third of the money designated for the states, since they peg their rates to the federal ones, which have now been lowered.

On top of all this, the bubble in the housing sector could burst at any time. "The rise in home prices since 1995 has outpaced the overall rate of inflation by more than 40 percentage points," writes Baker, in a cover story for In These Times. "This sort of runup in home prices has no precedent in the postwar era." Baker predicts the housing bubble will burst, just as the stock bubble did. In such a circumstance, people "could find they have negative equity in their homes.... When this happens, there is a huge incentive to just let the mortgage holder foreclose on the home. If this were to happen on a large scale, the survival of many banks and financial institutions would be at risk."

It's hard to know whether Bush understands the magnitude of the economic mess he is presiding over. His chronic habit of Iying about his policies surely does not inspire confidence.

With Republicans in Congress vowing to railroad through annual tax cuts upon tax cuts, the fiscal legacy Bush will leave is coming into plain view: a bloated Pentagon, a flattened income tax, dividend and capital gains and estate tax breaks for the rich, and precious little for the poor. He intends to bequeath us astronomical deficits and a social sector stripped bare.

Let someone else worry about it later.

That's the Bush motto.

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