If a family is running a huge credit card debt, does it make sense to call Visa or MasterCard to order a fistful of gold cards? That’s just what the Bush administration and Congress are doing. Federal Reserve Chairman Alan Greenspan testified again to Congress on Wednesday that deficits “do matter” because they create pressure to increase interest rates. No matter.
While the administration seeks a record $984-billion rise in the federal debt ceiling, Senate and House Republicans handed President Bush their agreement on a new tax cut of $350 billion, aiming to get a final vote before Memorial Day. Holding to even that amount depends on the smoke and mirrors of “sunset” provisions.
The provisional agreement sticks closely to the plan created by House Ways and Means Committee Chairman Bill Thomas (R-Bakersfield) for cutting the dividend and capital gains tax to 15%. Currently, dividends are taxed as ordinary income and gains at up to 20%.
The package that is being negotiated has some little pluses for working families. It contains $20 billion for cash-strapped states and $11.9 billion in child tax credits; the current credit of $600 per child would be increased to $1,000. But in their desperation to keep the debt down, negotiators agreed on keeping the credit only through 2005. The reduction of the dividend tax and capital gains tax would last a few years longer. However, guess what isn’t getting phased out? The accelerated reductions in the top income tax rates.
Under the House-Senate agreement, 50% of families would average $100 or less in tax relief -- barely enough for a Dodger game. Households with incomes of more than $1 million would get an average tax cut in 2003 of $93,500. Sure, the wealthy pay more in taxes to begin with, but the plan is stacked to ensure that the wealthy get as much as possible -- even more, proportionately, than under Bush’s original demand for $726 billion in tax cuts. So the question remains: Why do the prosperous get to bask, while middle-income and poor families are frozen out by sunsets? On the other hand, if the sunsets are canceled in coming years, which is all too likely, the cuts become even more unaffordable to the nation.
The tax package was trimmed slightly at the last minute for the sake of moderates like Sen. George Voinovich (R-Ohio) who were unwilling to accept more than $350 billion in cuts. But lawmakers remain oblivious to the consequences of piling on debt even as the $6.4-trillion federal debt ceiling has to be raised again, in part because of tax cuts already in effect. And the costs of rebuilding Iraq haven’t begun to be tallied.
Families across America are at least as worried as Greenspan, so common sense hasn’t vanished everywhere. Only in Washington.