Monday, February 03, 2003

More on Bush and Taxes

I wrote my column Wednesday, submitted it Thursday, and it was edited on Friday for Sunday's paper--but that got scrapped, obviously, with the Columbia disaster on Saturday. So I'm talking about what seems like ancient history this morning.

Read Gregg Easterbrook on why the shuttle program should be scrapped.

What a weak headline--the Bush plan will make taxes much more regressive. "Won't do much" my butt, as Bart Simpson would say.

Unequal Burden

East Valley Tribune, Feb. 3, 2003

The Tribune editorial page claimed last Wednesday that “the Bush tax cut would actually make the system even more progressive than it is now.” I stopped counting the misstatements in that sentence at three; I only get some 600 words to explain tax reality. Here’s the deception that outlandish claim requires.

First, federal income and estate taxes are progressive, but federal payroll and miscellaneous taxes are regressive, taking a bigger share from people at lower incomes. Three-quarters of tax filers overall, and 90 percent of those with incomes under $100,000, pay more payroll than income taxes, so the overall federal system is not that progressive.

Second, even if federal taxes overall are still progressive, nobody pays just federal taxes. State and local taxes are markedly regressive; people earning less pay a greater share of income. Combining federal, state, and local taxes, we’ve essentially got a flat tax system now.

Any progressivity in the federal system is matched by regressive state and local taxes. In 2001, people earning in the bottom 20 percent of all incomes paid about 18 percent in taxes to all levels of government; people earning in the top 20 percent paid about 19 percent.

During the past decades, the overall tax system has become more regressive. According to the Tax Foundation -- not necessarily the best source, as their methodology overstates tax burdens by about one-seventh by including as taxes public employees’ pension payments and rent on government property -- the impact of the federal income tax on the median family declined from 8.7 percent in 1955 to 8.4 percent in 1998. It’s state and local taxes and federal payroll taxes, all highly regressive, responsible for all of the subsequent increase in the median tax burden.

Third, these claims of increased progressivity require considering only a small part of Bush’s latest proposal while ignoring most of it. Virtually all benefits to families earning $50,000 or less come from three planks: the 10 percent bracket expansion, the child care tax credit increase, and the “marriage penalty” deduction. Even with adding in the unemployed worker accounts proposal, these progressive proposals constitute merely 21 percent of Bush’s plan.

Unfortunately, by a factor of nearly 4-to-1, the great majority of the Bush tax cuts reduce progressive federal taxes but leave regressive ones alone. Simply by definition, these tax cuts make the federal system less progressive, not more.

The good things The Tribune cites will happen even if we junk the vast majority of Bush’s plan. You want my positive proposal? Let’s do what George W. Bush and The Tribune talk about, not what they actually propose. Accelerate the 10 percent bracket expansion, the child care tax credit increase, the marriage penalty fix, and the worker accounts -- and still have $531 billion left for Medicare reform, AIDS, and hydrogen cars.

Sure, one-fifth of the Bush plan is progressive -- but four-fifths is wickedly regressive. One step forward and four steps back ain’t progress.

Watch their lips. When Bush or The Tribune say “taxes,” they mean only federal income taxes. By artfully discussing only one tax and only a small part of the Bush proposal, and hoping you don’t notice, they can bandy about such bogus statistics as the “average” taxpayer getting a refund of $1,000 -- in the same sense that over our careers, Hank Aaron and I averaged 377.5 home runs each.

Here’s what’s accurate: Parts of the Bush tax cut would actually make the federal income tax more progressive than it is now, but far more of Bush’s plan would make federal taxes less progressive -- and the overall tax system, already basically flat, more regressive.

I know -- it just doesn’t have the same zing.

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