Is the Bush tax cut based on a lie?
Arguing that “W” doesn’t stand for George Washington, the New Republic’s Jonathan Chait, says that Dubya is not telling the truth about this particular cherry tree.
“The debate over the Bush tax cut has been shrouded in a fog of cant and untruth,” says Chait in his TNR feature, “Going for the Gold,” posted May 10.
After hammering Republicans for a Bush support rally in which participants were specifically asked not to don suits for fear of looking overly well-to-do, Chait says, “the tax cut’s advocates have produced a series of distortions, misrepresentations, and outright lies intended to convince Americans that the tax cut primarily benefits the poor and the middle class, or at least to demonize those who would suggest otherwise.”
Chait’s argument basically turns on two points: 1) that an income-tax cut won’t help the poor because they don’t pay much income tax to begin with; and 2) that Bush is essentially being dishonest in his motivation for the cut but needs the support of poor and middle class Americans to see it realized.
The GOP might want me to fork over my elephant lapel button and resign my party registration when I say this, but Chait is right. Sort of.
A huge hunk of lower-income Americans pay very little or no income tax at all, which means that they won’t see much benefit from Bush’s plan. “If you don’t pay taxes,” admits Bush econ adviser Larry Lindsey, “it’s very hard to get a tax cut.”
The people who will benefit are the wealthy. People earning more than $269,496 a year, a group made up of only 1 percent of income earners in America, pay 34.8 percent of America’s annual tax bill. As WND editor Joseph Farah points out in his April 11 Between the Lines column, while shouldering nearly 35 percent of the tax burden, “these working families actually earn only 18.5 percent of the income.”
“Compare the burden of this 1 percent to the share paid by the bottom 50 percent of taxpayers,” says Farah. “They pay only 4.2 percent of federal taxes collected — even though they earn 13.7 percent of the income.”
Forget your wallet envy for a minute and ask yourself: Is there something about getting the shaft that Americans just don’t understand anymore?
Of course Bush’s income-tax cut benefits the rich — they fork over more income to the feds every year, far more. If they get some back, I say hallelujah and hope they get scads more.
Because the population that will benefit the most from this cut is so dinky, however, Bush has been less than forthright about highlighting the fact, instead yapping about how low-income waitresses will supposedly make out well under the plan. Hogwash, says Chait, and rightly so — hence his charge that Bush is lying.
But Chait isn’t against tax cuts, per se. He agrees that poor Americans are taxed too much — only that it is a dog of a different mange that afflicts their finances. “[W]hile low-income workers may not owe income taxes,” he says, “they do owe payroll taxes. Nearly 80 percent of the workforce, in fact, owes more in payroll taxes than in income taxes.”
Payroll taxes are, of course, what funds Social Security, the faltering retirement program Bush campaigned on fixing.
So why doesn’t Bush eat Chait’s lunch on this payroll tax issue while saving Social Security all at once? Chait says we should cut payroll taxes for the poor and shore up the resulting Social Security shortages with income-tax money, as we already do with Medicare. This idea is awful.
In his “Disquisition on Government,” John C. Calhoun warned about the result of this sort of policy:
The necessary result is, to divide the community into two great classes; one consisting of those who, in reality, pay the taxes, and, of course, bear exclusively the [burden] of supporting the government; and the other, of those who are, in fact, supported by the government; or, in fewer words, to divide it into tax-payers and tax-consumers.
If ever there were a recipe for disaster it is that; forcing one group to bear the responsibility of another group results in resentment, strife and social discord, none of which — last I checked — is the goal of government.
What Bush should do is publicly admit that cutting income taxes helps the rich more than the poor, but that he wants to help the poor, too — not by cutting payroll taxes and sticking the rich with the bill, but by cutting payroll taxes and not sticking anyone with the bill.
The trick is to tie the cut to Social Security reform.
Chait points out that conservatives are against cutting payroll taxes because Social Security will “go broke sooner.” Sure enough. But Social Security is ailing already. Expressing the need to give low-income Americans a payroll tax break not only scores Bush political brownie points, but also opens the discussion on changing Social Security to something less reliant on payroll taxes — e.g., private investment accounts.
Private accounts are usually tied to the investment markets, which — as measured by the Standard & Poor’s 500 index over the last 70-some years — has grown at an average annual rate of 10.9 percent for stocks, and about 7 percent for bonds. Compare that with Treasury bills, in which payroll taxes are invested for Social Security: 3.7 percent annually. In other words, Bush could cut payroll taxes in half, divert the remaining funds into private accounts and still make out better than Social Security does now.
Bush should look to San Diego, which opted out of Social Security during Reagan’s first year in the Oval Office, in the middle of the first real scare over the program’s stability. The city set up a progressive plan that is still a model for national reform today.
Participants in San Diego’s Supplemental Pension Savings Plan can reap benefits three times that of Social Security over the course of their working lives. “For example, a 30-year-old San Diego employee who earns a salary of $30,000 for 35 years and contributes 6 percent to his SPSP account will have amassed more than $500,000 by age 65, assuming his investments earn a real return of 7 percent,” explains Cato Institute Social Security analyst Carrie Lips. “That asset would provide him with monthly retirement income of approximately $3,000. Under Social Security, that worker would pay 6.2% of his annual salary in FICA taxes and be eligible for a payment of approximately $1,077 per month at age 65.”
I worked briefly in the California State Assembly for a San Diego legislator, Howard Kaloogian. His vision was to take San Diego-style retirement statewide, and eventually nationwide. Termed out of the Assembly in the last election cycle, Kaloogian is a natural choice to head up a Bush task force on Social Security. He’s a charismatic speaker, principled and persuasive. Bush could do a lot worse than personally call Kaloogian and invite him to Washington.
This is George W.’s golden opportunity. He can explain that, yes, in fact, his income-tax proposal favors the wealthy; since they are the ones earning the wealth, it only makes sense. But lower-income Americans deserve tax relief as well — big tax relief right where it hits them every month, the taxes that drag down their take-home pay.
In doing so, Bush can then live up to his campaign promise of Social Security reform, changes that are sure to benefit both poor and rich without playing on envy and stroking class hatreds by forcing the rich to carry more of the burden as their “fair share.”
Bush may not be as honest about his income-tax proposal as Jonathan Chait would like, but Dubya does have the opportunity here to prove a great statesman, genuinely lowering taxes for all while at the same time bringing progressive and much-needed reform to Social Security.
Related columns
WATCH: Tucker: JD Vance plans to find out how much we’re spending on illegal aliens
Tucker Carlson