Can America afford deep tax cuts Bush proposes?
Tax-cut reality has started to surface in Washington. The $1.6 trillion Bush tax cut is coming under more and more fire, some serious, some less so.
Economist Robert McIntyre had a little think-tank tax fun last week. After President Bush acknowledged at a press conference that he is among the top 1 percent of taxpayers, Mr. McIntyre, director of Citizen's For Tax Justice, calculated that George and wife Laura would save $100,000 a year in taxes if his plan passes.
Moreover, his heirs would save $10 million or so if the estate tax is actually abolished. And Treasury Secretary Paul O'Neill, with $59 million income last year, would save a bundle.
"There is nothing like strong self-interest," says McIntyre.
A strong liberal, he was trying to make personal, and thus more startling, the fact that the Bush tax-cut plan gives as much as 43 percent of its tax relief to the top 1 percent of taxpayers.
To McIntyre, the "class warfare" that Secretary O'Neill and other officials talk of is warfare of the rich against the middle class and the poor. It is the Bush camp, he argues, that "declared war" with its tax plan.
Speaking less combatively, McIntyre also reckons the Bush administration is full of "true believers" - those who want government smaller, doing less rather than more. And tax cuts make less money available for government programs.
The Congressional Budget Office (CBO) projects a $5.6 trillion budget surplus in the next decade, $2.7 trillion of that outside Social Security's surplus.
Sounds like a lot. But the Center for Budget and Policy Priorities (DBPP), another Washington think tank, calculates that when properly measured, the $1.6 trillion Bush tax cut would actually consume more than $2 trillion of the budget surplus. And that figure would reach $2.5 trillion if the proposed reductions in income tax rates are made retroactive to Jan. 1 of this year.
Why? One reason is that the tax cut would slash federal debt reductions stemming from the budget surplus, adding $400 billion in interest charges.
Bush economists know all these arguments. But so far they have stuck to their $1.6 trillion number, perhaps to discourage special-interest tax breaks from being added to the bill. Or perhaps they see $1.6 trillion as sounding more fiscally modest than $2.5 trillion. Martin Feldstein, an economist at Harvard University and an adviser to Mr. Bush during the campaign, argues that the tax cut would stimulate the economy sufficiently to boost tax revenues and make the overall cost of the Bush tax cut closer to $1.2 trillion over 10 years.
But McIntyre says his own calculations find the $2.5 trillion CPBB estimate conservative. Henry Aaron, a Brookings Institution fiscal expert, agrees, adding that Dr. Feldstein's number is "wrong" and contrary to standard economic models.
In any case, the size of the budget surplus available for tax cuts remains highly uncertain. The CBO, in its new report, included a chapter on "The Uncertainty of Budget Projections."
Looking at its past mistakes, the CBO says the $5.6 trillion surplus could be either too big or too small by as much as $3 trillion to $4 trillion.
Whoa! If it turns out that the CBO has made such a huge mistake, the Bush tax cut would eat deeply into the Social Security surplus that is supposed to be held in a "lockbox" - or, alternatively, the Bush cut would be accommodated easily.
Former Treasury Secretary Robert Rubin, writing in The New York Times, warns that the Bush tax cut together with some spending increases could bring back the economically damaging budget deficits that plagued the 1980s and most of the 1990s.
Mr. Aaron's guess is that the House will pass the Bush plan fairly intact quickly, perhaps this spring. In the Senate, closely divided between the two parties, the plan will be subject to harder debate and dissent. Some moderate Republicans will join with Democratic senators in an attempt to trim the size of the tax cut. If there is a compromise, it will go to a conference committee to work out differences with the House.
If no compromise is reached, the Senate may await a budget reconciliation bill in the fall. That would not be subject to a filibuster by Democratic senators.
Meanwhile, there is talk in Washington that the White House or Congress might delay or scale back the estate-tax repeal and even marriage-penalty relief. House Ways and Means Committee chairman Bill Thomas (R) of California hints that the cut in marginal income-tax rates for the rich may be clipped a little.
And a host of rich people - including Bill Gates, the Rockefellers, George Soros - are saying estate-tax repeal is a poor idea.
The tax facts are emerging.
(c) Copyright 2001. The Christian Science Publishing Society