SYNOPSIS: The rationales for Bush's tax cut wear away bit by bit
The selling of George W. Bush's tax cut relies heavily on salami tactics — slicing away opposition a bit at a time. To understand how fundamentally misleading that sales pitch is, we must look at the whole salami.
Basically, there are three federal taxes on individuals. The payroll tax, which is levied at a flat rate of 15.3 percent of income up to a maximum of almost $70,000, is the main tax paid by about four out of five families. The income tax is less than 10 percent of income for most families, but it rises to around 30 percent of the income of million-dollar earners. And the inheritance tax, which applies only to estates of more than $675,000 (twice that for couples), is a tax on only the very well off: a mere 2 percent of estates pay any tax, and most of the tax is paid by a few thousand multimillion-dollar estates each year.
Now for the salami tactics.
Conservatives who decry the burden of taxes always include the payroll tax in their calculations. And when arguing for tax cuts, the administration starts with numbers that include the whole salami. Again and again we hear about that projected surplus of $5.6 trillion. You shouldn't believe that projection, but for what it's worth more than half of it (the more credible half) comes from Social Security and Medicare — programs financed by payroll taxes.
When it comes to tax cuts, however, Mr. Bush's people ignore the payroll tax — that is, they propose no cut in the tax that is most of what most families pay, while demanding a large cut in the income tax, which falls mainly on the affluent. And they want to eliminate the inheritance tax, which is overwhelmingly a tax on the downright wealthy.
By proposing to eliminate a tax that falls entirely on the rich, to cut a tax that falls mainly on the well off, but to ignore the main tax paid by most people, the administration has made a deliberate decision to tilt tax relief strongly toward the top of the scale. Families earning $50,000 per year would on average get a tax break of about $800 annually; families earning $1 million would get about $50,000. Yes, well-off families currently pay a higher share of their income in taxes — but not that much higher. And no, it's not "class warfare" to point out that the tax cut disproportionately benefits the very, very affluent.
Now you could try to justify tax cuts tilted toward the top by claiming that a rising tide lifts all boats, and that cutting taxes on the rich will make the economy grow faster. But that is not the case that the administration is making — perhaps because given the extraordinary boom of the Clinton years, it's hard to claim that excessive taxes have been a drag on economic growth.
Instead, the administration pretends that it is offering broad tax relief for working families. Last week Treasury Secretary Paul O'Neill declared that the plan "would focus on helping those people who are close to the low-income and middle-income brackets," adding that "it would affect every American that currently pays taxes." This statement isn't technically a lie: "close to" need not actually mean "in," and "affect" need not mean that a family's taxes are actually reduced. But one has to say that Mr. O'Neill, whom the press has portrayed as a straight talker, is learning his new trade very quickly.
The pretense that this is a populist tax cut is aided by careful slicing of that salami. The Bush people love to point out that families in the lower brackets will see a greater proportional reduction in their income taxes than those in the top bracket; they hope you won't notice that the main burden on such families is not the income tax but the payroll tax, which will not be cut, and that the children of the wealthy will receive large additional tax relief from the elimination of the inheritance tax.
Those staged events with "tax families" slice the salami even thinner, carefully avoiding any reference to the major beneficiaries. The only high-income taxpayer, and the only likely inheritor of a taxable estate, ever mentioned at these events is Mr. Bush himself.
Otto von Bismarck is supposed to have declared that "people will sleep better not knowing how their sausage and politics are made." Mr. Bush no doubt agrees; he hopes that the American people won't look too closely either at the composition of the tax salami or at how he proposes to slice it.
Originally published in The New York Times, 2.11.01