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Volume CXXXII, Number 12 |
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Bush's proposed tax cut does not add up
BENJAMIN KREIDER
COLUMNIST
In typical Republican fashion, President George W. Bush has proposed a second tax cut in two years. He alleges that lower taxes will stimulate the nation's ailing economy and create thousands of jobs. Perhaps Bush has forgotten that he made the same promise when the last tax cut passed, yet the nation's economy has still not improved.
Bush feels that the proposed $674 billion tax cut will spur consumer and business spending and create jobs. As part of the plan, taxes on stock dividends will be eliminated, and small businesses will be able to deduct more money from their taxes. In fact, half the tax cut comes from the elimination of taxes on dividends. In other words, the plan greatly benefits the wealthy Americans who already reaped the rewards of Bush's last tax cut.
The elimination of dividend taxes is another clear example of the Bush administration's coziness with the wealthy. The President himself told reporters that "It's a plan that's good for all Americans." Yet millions of poor Americans cannot even afford to put food on the table, let alone purchase stock. How would such a tax cut help them?
Increasing the cap on small businesses tax deduction does not help the poor, either. This is just another initiative that the administration has developed to help the same business community that largely financed Bush's campaign. In addition, the White House claims the new tax plan will give small business owners an average tax cut of over $2,000. The Urban Institute-Brookings Institution, however, found that the majority of small businesses would actually save only about $500.
Bush has gotten economists from various universities and the Federal Reserve Board to endorse his plan, hoping this will increase public support for the cut. How is this supposed to assuage the fears of Americans who don't support the tax cut? Economists are notoriously conservative, both those at universities and in the private sector. No economist with any amount of sense would actually oppose the president's plan to his face.
Both Bush and his economist buddies seem to ignore the massive budget deficits that have built up in the past several years. The President's budget director admitted that the federal budget deficit will continue into the "foreseeable future." He also said that the shortfalls will be far greater than the $200 billion to $300 billion projected for this fiscal year and the following one.
Let's get this straight: The deficit is getting bigger, yet Bush thinks it is a priority to cut taxes? Cutting taxes will decrease the federal government's revenue, exacerbating already huge deficits. The timing is particularly bad, as the country is preparing for a likely war in Iraq that will cost billions of dollars. The simultaneous large tax cut, massive budget deficits, and increase in defense spending occurred before and during the Reagan era. Reaganomics, of course, resulted in a recession in the early 1990s.
If members of the Bush administration really paid attention to history, they would realize how foolish this tax plan really is. They would understand that it is a pipe dream to simultaneously cut taxes and increase spending. Yet the administration is advocating huge increases in defense spending and an overall four percent jump in spending next year.
Many on Capitol Hill believe that the plan will not pass. Democratic Senator John Breaux of Louisiana, who backed Bush's last tax cut, believes the measure will not pass. Even Republican Finance Committee Chairman Charles Grassley maintains this same view.
This measure will mainly help the wealthy, not everyone, as Bush claims. Not even those who favored the last tax cut believe this one will pass. The current proposal is unlikely to pass, so it must be reconsidered.
Whatever happened to Bush's philosophy of compassionate conservatism? It seems these days that he only shows compassion towards the wealthy and the business community, hardly parties that deserve compassion.
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