With Tuesday’s announcement by White House budget director Mitchell E. Daniels Jr. that he will resign, President Bush’s original economic team -- which put together his $1.3-billion tax cut in 2001 -- is gone. But the administration’s tax cut obsession, which has fed a projected $2.2-trillion deficit, remains as strong as ever.
Bush delivered another speech Tuesday arguing for large new tax cuts, last pegged at $550 billion, and his supporters in the House, led by Rep. Bill Thomas (R-Bakersfield), are still trying hard to provide them. A GOP plan in the Senate purports to cap new tax cuts at $350 billion, but only by pretending to be temporary. A smaller Democratic plan would spread the benefit to more taxpayers but mostly gives Democrats political cover. With the economy in flux and the costs of the Iraq war and reconstruction unknown, all three plans should be put on ice for at least a year. Since that’s a slim possibility, any final plan should at least be honest.
For instance, Thomas, chairman of the House Ways and Means Committee, has crafted a proposal that is even more beneficial to the wealthy than the president’s. He would slash the top rate on both capital gains and dividends to 15%. The nonpartisan Urban-Brookings Tax Policy Center calculates that the richest 5% of households would receive 75% of its tax cut benefits. Households with incomes of more than $1 million would get an average tax cut of $105,000 under Thomas’ plan. Under Bush’s it would be $89,500. To keep the “total cost” of his plan down, Thomas makes the highly dubious assumption that his tax cuts would be phased out after 2005. If they were not, the total cost would probably be well over the $726 billion originally asked for by the president.
Then there’s Sen. Charles E. Grassley (R-Iowa), the chairman of the Senate Finance Committee. Grassley is calling for phasing in the dividend tax cut that Bush is calling for -- one-third in 2003, another third in 2004 and full tax exclusion after 2005 -- but only for one year. Right. Aside from the fact that it would be an investor roller coaster, Grassley’s proposal, like the president’s, would clobber states -- including California -- that rely on federal taxes as a basis for taxing dividends. From 2003 to 2005, California could lose as much as $2.3 billion in revenue, according to the nonpartisan Center on Budget and Policy Priorities.
Senate Minority Leader Tom Daschle (R-S.D.) has introduced a 10-year package that would cost less than $200 billion, including some direct aid to states and to small businesses. It has no chance of passage.
So far, old-fashioned anti-deficit Republicans like Sen. Olympia J. Snowe of Maine have resisted cuts of more than $350 billion. If they can continue to hold out for something scrupulous rather than the packages currently on the table, they’ll remain the only effective antidote to the administration’s spring tax cut fever.