July 28, 1999
Houston Chronicle, July 28, 1999
Knight-Ridder/Tribune Media Services, July 26, 1999
Los Angeles Daily News, August 1, 1999
The battle over tax cuts is heating up, like the stale, hazy air of late July in Washington. We’ve been there before. But political memories here are too short to even use the words “déjà vu.”
It was just the summer before last that Congress voted to lower the tax on capital gains. That move ensured that Bill Gates would pay a lower tax rate on profits from selling billions of dollars worth of stock than the average truck driver pays on the last $1000 of his income.
Now the Republican leadership wants to cut Mr. Gates’ tax bill even further. They see the projected budget surpluses of $3 trillion over the next ten years as an opportunity to create a giant federal ATM machine for the rich.
Some details: the legislation passed by the House, which President Clinton has promised to veto, would cut the top tax rate on capital gains– profits made from the sale of stock or other assets (in this case held more than a year)– from 20% to 15%. It would also eliminate inheritance taxes for the largest estates ($650,000 is already tax-free), reduce income taxes by 10%, and grant other tax cuts to individuals.
There is also about a hundred billion dollars worth of tax breaks for every special interest– insurance, energy, banking, multinational corporations– with an army of lobbyists to push its snout up to the public trough.
More than two-thirds of the benefits from this legislation would go to the top 10% of taxpayers– the same people who got 86% of all the gains in the stock market over the last decade. The lower 60% of taxpayers would get about 9% of the benefits.
A compromise version of $500 billion in tax cuts now emerging from the Senate has also drawn a veto threat from President Clinton “because it threatens our ability to secure Medicare and Social Security and pay down our national debt,” according to the White House.
Here’s where some honesty in the debate would really help. It’s not the money that’s the problem– even the House tax cut of $792 billion is well under one percent of our national income over the next 10 years. If it were being used for something that would benefit the majority of people, there would be nothing fiscally irresponsible about spending that money.
Furthermore, Social Security has no financial shortfall for the foreseeable future. It is perfectly legitimate for the government to spend the excess revenues collected by Social Security, which will then be paid back like any other government borrowing. All this nonsense about “saving the Social Security surpluses” is pure demagoguery, and mostly everyone in Washington knows it.
And of course using the projected budget surpluses to pay down the national debt will help the economy about as much as the Yankees winning the World Series this year. This is another one of those little secrets that most economists know but don’t like to talk about. The amount of increased growth we would get from paying off the national debt over the next 15 years, according to the best estimates of even conservative economists, is so small that it could hardly even be measured.
So why not tell the truth, and just say there are better things we can do with the money? The polls show that this is what most people think. Education, health care, and assistance for the poor, who have gotten so little of the gains from economic growth– these are priorities that would resonate with the public.
The problem is that the whole budget debate is overwhelmed by the posturing that is prelude to that great millennial spectacle to come: the elections of 2000. The Republicans are basically trying to buy some upper income votes and campaign contributions with their tax cuts. Of course they also have their hard-core ideologues whose mission is downsize all of government (except for that most bloated and wasteful bureaucracy of all: the Pentagon).
The Clinton administration (and Gore candidacy) would like to claim the mantle of fiscal responsibility and defender of Social Security. And they are competing for a lot of the same dollars– $200 million is their latest target for soft money in 2000– in campaign contributions from wealthy individuals and corporations. So they are not about to alienate these people with a populist campaign against slathering more money on the undeserving rich.
The result is a thoroughly disingenuous debate that puts most people to sleep– and understandably so. Let’s hope they wake up before some hundreds of billions of tax dollars get steered to those who need it the least.