Call the Bush tax cuts a work in progress. While the Senate on April 6 passed a modified version of the president's budget plan, okaying a $1.2 trillion tax cut over the next ten years and an $85 billion cut this year, the numbers are not final yet, nor is the partisan wrangling.
Democrats say they fear that the president's gargantuan tax cuts would jeopardize Social Security and Medicare, and drag the budget back into deficit. They argue that while the current numbers may add up on paper, the government will be unable to maintain the discipline necessary to stay within its own spending parameters.
Republican backers believe the government can stay disciplined, and that with $5.6 trillion in surpluses projected over the next decade, there's more than adequate money available to meet government spending needs while substantially reducing the taxes ordinary--not just rich--citizens pay.
What passed on April 6 was technically a budget resolution, a blueprint that tax and spending bills are intended to, but don't always, follow. Yes, these numbers will change, probably in Bush's favor.
The ten-year tax cut was only three-quarters of the $1.6 trillion Bush has proclaimed to be essential to realizing what he referred to in his April 9 Congressional budget presentation as "a new vision of governing our nation." The final tax-cut figure is expected to settle to a level somewhere between what the House and Senate have passed, and thus closer to what Bush wanted originally.
What will it mean for the average family? Numbers crunched by the US Treasury Department (for calendar year 2000, excluding an estate tax repeal) analyzed how the tax proposal will affect taxpayers at various income levels. Data for a family with $50,000-75,000 in pre-tax cash income, for example, revealed that:
o Percentage of income taxes paid under current law: 12.2%.
o Percentage of income taxes to be paid under Bush tax cut:11.3%.
o Average amount of income taxes under Bush tax cut: $4,279, or a 20.8% cut.
As we went to press, the Senate-approved $1.2 trillion tax cut measure was on its way to a conference with the House of Representatives, which in March okayed a $1.6 trillion tax cut. The House will also be taking a look at various tax bills, including one that would provide tax incentives for retirement savings. In May the Senate will be busy examining details of the tax cuts passed by the House in March. Congress will then meet to resolve the tax bills, before sending them in final form to George W's desk for signature.
A Job for the Senate
One of the issues the Senate must still address (before even touching upon the nature of tax cuts covering fiscal year 2002 through FY2011) is the $85 billion tax cut for 2001. Designed to help jump-start what Bush has referred to as a "sputtering" economy, the funds are to be taken from the budget surplus for the current fiscal year. The Senate's $85 billion figure bests the $60 billion that has been discussed but not acted upon in the House.
Republicans would like to see that $85 billion directed toward reductions in all tax brackets. Democrats, while agreeable to limited tax reductions (they have little choice), would rather see some of this money returned to taxpayers in the form of rebate checks. They also favor earmarking a chunk of that $85 billion to make possible a reduction of the income tax rate from 15% to 10% for the first $6,000 of each individual's income.
For its part, the House has already approved three bills along the lines that Bush originally proposed. One would lower income tax rates across the board. Another would lower taxes on married couples and increase the tax credit for families with children. The third would gradually reduce the estate tax rate and, in 2011, repeal the tax entirely.
Most experts seem to agree that if the Bush tax plan becomes reality, the so-called alternative minimum tax (AMT) will face revisions. Designed to prevent rich persons with huge deductions from dodging taxes, in Bush's tax world the AMT would suddenly apply to some 35 million taxpayers. The problem is simple: Many of those to be affected are not remotely wealthy, and would be denied the benefits of a tax cut. To remedy this situation, Congressional tax experts estimate it would cost nearly $300 billion over a 10-year period.
Turning to Social Security, the Bush budget makes available $600 billion over a decade for changes to the program. These changes no doubt would include W's notion to use a portion of Social Security taxes to establish personal investment accounts. If a taxpayer gets his hands on two percentage points (as per Bush's plan) of the 12.4 % in Social Security taxes the taxpayer and his employer are currently paying, for use in a private account, estimates place the cost in monies lost to the government at about $1 trillion. These losses supposedly will not affect the solvency of the Social Security trust fund.
Look for more intense partisan Congressional wrangling throughout the merry month of May--and a probably very pleased George W. when it's all over.