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Charge: Tax-cut

By David R. Francis Staff writer of The Christian Science Monitor / May 14, 2001



The Democrats in Washington have been busy saving the Republicans from themselves.

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It's an odd situation. Polls show that most Americans think the tax cut sought by President Bush was too big and so skewed in favor of the wealthy that those with moderate incomes would not benefit much.

Democrats, helped by a few moderate Republicans in the Senate, have been working to make the tax cut more "fair and balanced" - and as a byproduct, more sellable to most voters.

This coalition has shrunk the size of the tax cut to about $1.35 trillion from the $1.6 trillion originally sought by Mr. Bush. It also will trim a little the amount of tax benefits going to the rich, providing more savings for those of moderate and low income.

These changes are perhaps a relief to the White House. Officials there, though, aren't likely to admit that considering the clout of tax-cutting enthusiasts in the Republican political base.

"Bush wins, no matter what the number is," says Roger Hickey, co-director of the Campaign for America's Future. "He will declare it a Bush tax cut."

Even though the Republicans are fighting hard in Congress to limit spending programs that benefit those of more modest incomes, they will claim anything that passes as their own when campaign time comes.

So-called "progressives," like Mr. Hickey, want to see room in the budget for extra spending on children. But they have just about given up on any sizable shift toward that goal.

There is no new net investment in children's programs in the 2002 budget, Hickey says.

"President Bush is choosing the wealthy over children," he charges.

Hickey's argument is that after the tax cuts of President Reagan, the budget sank into a deep deficit that took 20 years "to clean up." In that process, the federal government short-changed spending on children's healthcare, education, and child care. One in 6 children remain in poverty.

Now, he says, "here we go again" with another big tax cut.

The Bush budget is "outright fraud" in that Bush promises to "leave no child behind," yet the budget cuts spending overall on children, Hickey maintains.

It raises outlays on Head Start in fiscal 2002. But it cuts spending on the Early Learning Fund ($20 million), the Youth Employment and Training programs ($172 million), and programs to renovate schools and reduce class size ($2.8 billion).

If the $555 billion of tax money going to the top 1 percent of taxpayers under the Bush plan were used instead for children, it would improve the life of America's poorest kids, Hickey says. For example, $175 billion could expand the child tax credit to $1,000 per child and lift 2 million children out of poverty; $67 billion would provide health insurance to 5.1 million uninsured children.

Hope for Hickey now lies in the November 2002 congressional election. If a large number of Democrats vote against the tax cut, they can make it a big campaign issue. But it will be a less effective issue for them if the tax provisions are more centrist.

As the budget resolution was shaping up last week in the Senate Finance Committee, the top personal income tax rate will be reduced from 39.6 percent to 35 or 36 percent, instead of the 33 percent sought by Bush.

The 33 percent rate would have saved the top 0.6 percent of all filers - about 700,000 taxpayers - $237 billion over 10 years, figures the Joint Tax Committee of Congress. If the rate were cut to 35 percent, the savings would drop to about $183 billion.

In addition, the wealthy - or at least their heirs - will get a break on the estate tax. The original Bush plan called for its repeal over 10 years, reducing revenues by $306 billion. This plan will likely be modified in the legislative process. Instead of full repeal, the size of an estate exempt from taxation will be raised from $625,000 to perhaps $2 million or so. The tax now applies to only the largest 2 percent of estates. It will hit far fewer in the future.

Another liberal Washington group, the Center on Budget and Policy Priorities (CBPP), complains that in President Bush's drive to win big tax cuts for the wealthy, he held inaccurately that the drop in the 39.6 percent marginal tax rate would benefit "more than 17.4 million small business owners and entrepreneurs."

In fact, CBPP notes, Internal Revenue Service data show that only 1.4 percent, or 180,000, of small business owners pay income tax at the top rate.

Actually, more small-business owners would benefit from expansion of the Earned Income Tax Credit, a program aimed primarily at helping the working poor.

(c) Copyright 2001. The Christian Science Monitor