Columns » Ernest Dumas

Worried about Bush

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If you can believe a New York Times/CBS News poll, most Americans are just a little worried about what President Bush has in store for the country and their pocketbooks the next four years. They have plenty to worry about, according to an administration leak to the Washington Post about Bush’s tax plans. But worried ought not to be equated with surprised because what Bush plans is pretty much what the country got in the first Bush term. The rich are going to get much, much richer with the government’s help. But here’s a peculiar little difference. If you’re not in that worthy group, your taxes will probably go up and you may lose your employer-sponsored health insurance and have to pay much higher premiums. Right after the election, the president said he intended to use his new political capital to push through “tax reform” and “Social Security reform.” Bush said that, unlike his first term, his tax plans from now on would be “revenue neutral,” meaning that they would not raise or lower the aggregate income to the U.S. treasury. Tax cuts will be offset by tax increases, although the administration does not use the latter phrase. “Revenue adjustments” is better. Bush will try again to eliminate income taxes altogether on investment income. The president will appoint a commission soon that will recommend these and perhaps other steps to produce what the president called a “pro-growth tax system.” In the four rounds of tax cuts for well-to-do Americans and corporations, Bush tried to eliminate taxes on income from capital gains, stock dividends and interest so that the only taxes would be on worker wages and salaries. But the Senate would not go along and he had to settle for cutting those tax rates roughly in half. Now, with a bigger Republican majority in the Senate and the House, he hopes to finish the job. As he did in 2001 and 2003, Bush will insist that these tax cuts benefit all Americans and that most of the beneficiaries will be people of modest incomes. And it’s true that, numerically, more low- and moderate-income families than rich people will see some benefit. That is because there are thousands times more of them than there are rich people. But here’s how it would affect our little state. Of the $902 million in income from stock dividends received by Arkansans in 2002 — the latest figures the IRS publishes — 65 percent went to only 9,161 Arkansans who reported adjusted gross incomes of more than $200,000. Probably 80 percent of that income went to some 700 people earning more than $1 million a year, but you can no longer be sure because the Treasury Department has stopped breaking it down to show the earnings and tax benefits of people earning more than a million a year. It was getting embarrassing. Capital gains present the same picture. Sixty-seven percent of all the profits from capital sales reported by Arkansans went to 8,639 people making more than $200,000. They are roughly the same people reporting the huge incomes from dividends. No one can be surprised that the president will try again. Voters thought his most admirable characteristic was consistency. The tax cuts for the wealthy and corporations were supposed to leave more money in the pockets of the investor class, who would use it to create millions of jobs. It never happened, but Bush knows that if you let Paris Hilton keep even more of her vast family investment income some day she will hire another maid. To offset the huge treasury losses from these tax cuts and to prevent the deficits from swelling larger, Bush will propose the elimination of a few individual and business deductions. Administration officials suggested two: the deduction people claim for their state and local taxes when they file itemized returns, and the business deduction for employer-sponsored group health insurance. That is where you get to help out with deficit reduction and to do your part to see that Paris Hilton enjoys a better life. Removal of the deduction for state and local taxes would shift much of the tax burden to blue states like New York, California, Massachusetts and Connecticut, which have substantial state and local income taxes to support a high level of services. The federal tax increases on those states would be mammoth. But Arkansans would not escape lightly. Owing to the loss of the deduction for state and local taxes, even the poorest Arkies — those earning less than $20,000 a year — would face a hefty tax increase. They would be taxed on the $35 million they now claim as deductions, perhaps much more if the IRS also lowered the standard deduction as well. Those earning less than $50,000 would be taxed on another $200 million. Here’s the real shocker. With 45 million Americans without health insurance, Bush would remove the incentive for businesses to offer health benefits to employees. More than half of Americans who are insured are covered through employment-based plans. Presumably, many companies that phased out their group plans would pass the money along to employees in the form of higher wages, but it would not come near matching the much higher premiums they would have to pay for individual policies. Just think. Before long, even the Walton billionaires will be using the short form because they won’t have deductions to claim or income to report. Will that be a great tax system or what?

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