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Tax Cuts Don’t Equal Tax Increase—Viewpoints | EPI

Opinion pieces and speeches by EPI staff and associates.


Tax cuts don’t equal tax increase…

by Max Sawicky

When the incoming Bush administration promoted its tax cut, it cited a projected federal budget surplus of $5.6 trillion. Now the surplus estimate is down so low the federal budget can barely crawl. So why is the GOP so happy with, of all
people, Sen. Ted Kennedy (D-Mass.)? When Kennedy proposed to roll back part of the Bush tax cut, Republicans took his speech as a license to broadcast lies that Democrats want to raise your taxes.

Exactly what does Sen. Kennedy propose? He says the reductions in the top income-tax rates that are scheduled to take place after 2004 should be canceled. He also opposes repealing the estate and gift tax in 2010, though he does support a cut in this tax.

The GOP pitch rests on this false claim: It’s wrong to raise taxes during a recession. Yes, it is wrong, and that’s why Sen. Kennedy proposed no such thing. His changes would not take effect until after 2004.

The tax cut passed last June phases in over a 10-year period. A taxpayer who stands to benefit from changes that take effect later will pay less taxes than if the law had not been changed. Now, if only some of the scheduled changes are
canceled, he or she would still pay less taxes than if the law had not been changed. The difference is that the tax cut is smaller under Kennedy’ s proposal. The Republicans are pleased to call this a “tax increase.” All who would be affected by Kennedy’s proposal would get a smaller tax cut than otherwise, but they still get a tax cut.

Kennedy’s proposal wouldn’t touch 95 out of 100 taxpayers. Only households with annual income in excess of $150,000 would be affected. Most of the impact is on those with incomes over $373,000. Even so, all of those folks would still get a tax cut from other provisions of the law passed last June.

The Kennedy proposal is much more likely to affect you because of the way he would use the money. He would expand public investment in education, Head Start, early-childhood development and health and child care. Everybody is talking about a new prescription-drug benefit for senior citizens under Medicare, but little is said about where the money would come from.

Like it or not, the federal government is getting bigger, and it is going to stay that way. Right now it is mailing checks to wealthy farmers, buying weapons systems the Pentagon doesn’t want, and building cloverleafs in a neighborhood near you. Health care, education and children are needlessly shortchanged. The choices are clear, even if the debate is not.

Max Sawicky is an economist at the Economic Policy Institute.


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