It was the muffler heard round the world.
In a press briefing Senator Tom Daschle (D-SD) said a wealthy taxpayer would be able to buy a new Lexus with his tax cut while a $50,000 earner would only be able to buy a new muffler for his used car. The comment was repeated ad nauseum on radio, TV, and print media.
The media, true to form, lunged for the sound bite and left everything else behind. None of us got to hear what Senators Conrad (D-ND) and Daschle wanted to communicate.
In fact, the two Senators have some compelling misgivings about the size and distribution of the tax cut President Bush has proposed. Here are their basic concerns:
The tax cut is too large. They argue that the $1.6 trillion cut in the Bush plan is a lowball figure. The actual cost, they say, will be substantially higher. They reckon the true cost at a cool trillion dollars more.
That’s quite a difference.
The true cost of the Bush plan, the Senators say, is $2.6 trillion. The additional costs include: $200 billion to make the cut retroactive, another $200 billion to reform the Alternative Minimum Tax, $100 billion to extend expiring tax provisions, and $500 billion for additional interest the Treasury will have to pay because paying off the national debt will take longer. (As the late Everett Dirksen once said, “A billion here, a billion there, and sooner or later it adds up to real money.”)
The most recent Congressional Budget Office projections of the surplus now total $5.6 trillion over the next 10 years. But a closer look shows that $2.5 trillion will be in the Social Security trust fund and $0.4 trillion will be in the Medicare trust fund, a total of $2.9 trillion. Subtract that from the $5.6 trillion total surplus and the surplus available for a tax cut is $2.7 trillion.
That’s only $100 billion more than the Democratic Senators’ reckoning of what the Bush plan will cost, $2.6 trillion. Since $100 billion is rounding error in government there won’t be a dime for contingencies or new programs. There also won’t be any room for error or recession.
There will be no debt reduction. If 100 percent of the actual surplus is committed to a tax cut, there will be no money to reduce the national debt. If we fail to reduce the portion of the national debt held by the public, we will be ill prepared for the surge in retirement costs when baby boomers retire.
Ironically, paying down the debt is also a way of financing a tax cut. As I pointed out in an earlier column (read it on my website at http://www.scottburns.com/001105SU.htm), net interest costs absorb about 25 percent of federal income tax collections. Pay off the federal debt and you can cut income taxes 25 percent.
The surplus may not exist. “As we all know, projections are no better than weather forecasts. And if we are prepared to accept weather forecasts for five or ten years out, I suppose we ought to accept these projections. But the ramifications of being wrong on these projections are far worse than being wrong on a weather forecast” That’s what Senator Daschle said in a February 7th news briefing. A small change in our rate of growth could make the surplus disappear.
The tax cut is unfair. As Senator Daschle sees it, the bottom 80 percent of all earners will get only 29 percent of the tax cut while the top 20 percent will get the remainder. The top one percent, he says, will get 43 percent of the benefits.
In a recent telephone conversation the Senator told me he was disappointed by how much substance had been lost in media reporting of the press briefing. “This has huge ramifications. We ought to give it the debate it deserves,” he said.
I asked what he would like to see as an alternative.
“Most likely, our proposal will have three components. One will be pay-down of government debt. Another will be a tax cut,” he said.
The third— and he is proposing an even, three way division— would be “investments in key priorities,” i.e. New spending.
Who would get the tax cut?
While the details are far from final, the Senator is thinking about a tax “dividend” that would offset a portion of the payroll tax. This would lower the total tax burden of the 93 percent of all workers who earn less than the $80,000 maximum on the employment tax.
Stay tuned.
Want to learn more? Here are some recent columns and related sources on the World Wide Web:
- For the current Congressional Budget Office projections of the surplus: http://www.cbo.gov/showdoc.cfm?index=2727&sequence=0&from=1
- For Senator Daschle’s web page: http://www.senate.gov/~daschle/
- The White House and the Presidents’ Agenda for tax relief: http://www.whitehouse.gov/news/releases/20010208.html
- The Center of Budget and Policy Priorities (critique of Bush tax cut): http://www.cbpp.org/
- The Total Tax Burden and its distribution: http://www.scottburns.com/001126SU.htm
- The Biggest Source of Inflation: http://www.scottburns.com/001119SU.htm
- They Took the National Debt Clock Down Too Soon: http://www.scottburns.com/001112SU.htm
- Over-taxed and Under Taxed at the Same Time: http://www.scottburns.com/001022SU.htm
- A Trillion less than meets the eye— the Social Security Surplus: http://www.scottburns.com/001015SU.htm
- Why there Should be No Tax Cuts: http://www.scottburns.com/000919TU.htm
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Pexels.com
(c) Scott Burns, 2022