Columns » Ernest Dumas

The next four years


Pre-election and exit polls and Karl Rove all agree: President Bush was re-elected by people who thought he was tough on global terrorists after 9/11 or that he was stronger on “moral values,” which is to say abortion and same-sex marriage. Those who did not want to remove a firm war president, about 34 percent by Rove’s calculation, gave him the margin. What they will get is apt to be quite different and probably not to the liking of very many of them. The United States will not lift a finger against its most dangerous enemies, North Korea and Iran, because Bush doesn’t have the soldiers, and though he will stage a good effort the Senate will not adopt constitutional amendments to outlaw same-sex marriages or abortion. So the president said two days after his election that he would use the enormous political capital of his victory to produce big changes in the federal tax code, Social Security and people’s legal rights, the three “reforms” he talked vaguely about in the campaign. With a larger margin in the Senate, he will almost certainly get “tort reform.” People’s right to sue to recover for the harm done them by corporations, medical institutions and professionals will be curtailed. Few people would support that, but it is more palatable if you say the target is trial lawyers instead of the people they represent. Iffier but probable is some plan to partially privatize Social Security, a goal of the big brokerages, which were the president’s biggest contributors. If Congress diverts a portion of people’s Social Security payroll taxes into private investment accounts, it will leave a trillion dollars of retirees’ pensions unfunded, hastening insolvency and swelling short-term budget deficits. Given Bush’s record, he will increase the nation’s borrowing and leave that hole to be filled by his successor. The president’s admirers may be philosophical about those little problems as long as he nominates a couple of anti-abortionist Supreme Court justices, but they may find it hard to abide the third leg of his agenda. No one knows what Bush means by “tax reform.” The most pleasing scenario — but unlikely — is that he wants to simplify the tax code much like Ronald Reagan did in 1986, by eliminating subsidies put into the code mainly by his party and many on his own pleading. A good place to start would be to eliminate the corporate tax breaks that Congress enacted at his behest in 2002, 2003 and 2004. A study by the Institute on Taxation and Economic Policy of 275 Fortune 500 companies showed that in the three years after Bush took office the effective tax rate on the most profitable corporations fell to 17.2 percent, less than half the statutory tax rate of 35 percent, mainly owing to the Bush tax breaks and craftier accounting. Eighty-two of the biggest corporations paid no tax at all in one of the three years, and 28 paid no taxes all three years. Many claimed big rebates. General Electric claimed $9.5 billion in tax breaks. Bush proposed tax breaks three years in a row on the premise that companies would invest in new plant and equipment and create jobs. The opposite happened. The 275 companies reported high profits but a 15 percent decline in capital investment from 2001 through 2003. The president wants to make permanent the 2001 and 2003 tax cuts for the richest individuals, which are to expire by 2009. But the Congressional Budget Office estimates that would raise the deficit by $2.2 trillion by 2014. That will scare the bejeesus out of investors and bring sky-high interest rates and potential cataclysmic consequences, but what’s new? Moderate Republicans could draw the line but Bush should get his way. His goal of whacking taxes almost altogether on the very richest Americans will be harder. Congress would not go along in 2002 with ending taxes on investment income — capital gains, interest and dividends — but it did halve the tax rates. It was supposed to raise savings rates but didn’t. Eliminating the taxes would magnify the deficit, and the spectacle of the nation’s billionaires paying an effective tax rate of less than 5 percent while workers paid more than 20 percent on their meager strivings might give pause to even the most ardent evangelical. The closest to a specific tax reform was Bush’s statement to Florida supporters that “I’m not exactly sure how big the national sales tax is going to have to be, but it’s the kind of interesting idea that we ought to explore seriously.” He was talking about replacing other federal taxes — income, payroll, inheritance — with a national sales tax, an old conservative dream While Bush was not sure, there have been studies. The sales tax would need to be from 48 to 53 percent to replace the other taxes. Citizens for Tax Justice calculated how that would affect you. The poorest fifth of Arkansans would pay an average of $3,703 a year more than they’re paying Uncle Sam now. The next fifth would pay $4,556 more, the next fifth $3,475 more and the next fifth $4,315 more. The top 1 percent of Arkansas taxpayers would see their taxes fall by a handsome $113,859 a year each. The national tax burden would shift dramatically from rich states like Connecticut, New York and Massachusetts to poor states like Arkansas. Four more years, and let the good times roll!

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