Tax Cuts And Presidential Politics

Commentary by Pete du Pont

Taxes. Is there anything worse? Oh yes, there's death. This nation was founded on a tax revolt, yet the media tell us that today's taxpayers couldn't care less about a cut in their tax load, the biggest burden relative to income in the history of the Republic. Pardon my skepticism, but I believe that most taxpayers would like to control a larger share of the fruits of their own industry and enterprise, especially at a time when the federal government luxuriates in revenues vastly in excess of its spending.

Taxes have risen more rapidly in the United States relative to income than in any other major country over the last eight years, according to the Organization for Economic Cooperation and Development. Surprisingly, even socialist European governments now recognize the virtue of cutting taxes on business and individuals. Britain's Prime Minister, Tony Blair, for example, has slashed the top capital gains tax rate from 40% to 10%, half the U.S. rate. (If Blair wants to survive politically, he may be cutting fuel taxes next.)

As the party of smaller government, the Republican party's best issue and the Democrats' worst is tax cuts. George Bush the elder learned that the hard way in 1992 after betraying his tax pledge ("read my lips, no new taxes"). Mr. Clinton promised a "middle class tax cut" during that campaign but engineered a huge tax increase in 1993, aided by Al Gore's crucial Senate tie-breaking vote. The tax boosts, along with Hillary Clinton's failed effort to socialize medicine, soon swept Democrats out of office and put Republicans in charge of Capitol Hill for the first time in 40 years.

The tax proposals of the two major presidential candidates are quite different. George W. Bush wants to cut income tax rates across the board, replacing the current 15, 28, 31, 36, and 39.6 percent of income seized by Washington with a lower 10, 15, 25, and 33 structure. He also wants to double the child tax credit to eliminate federal income taxes for two-child families earning less than $35,000 per year and to repeal the taxes on married couples and estates, a measure recently vetoed by Mr. Clinton.

These changes would cut almost everybody's taxes, benefiting an estimated 124 million Americans. Bush's economists calculate that the average drop in federal income taxes will be 55% for families earning $40,000 to $50,000, 30% for those earning $50,000 to $75,000, 18% for those earning $75,000 to $100,000, and 10% for families earning more than $100,000. True, the largest dollar tax reductions go to high-income taxpayers, as Al Gore charges, but that's inevitable because they pay almost all the income taxes. The top 1% pay 20% of all income taxes and the top 20% pay two-thirds. But Bush tries to help the lowest third of taxpayer who pay no income taxes today by allowing them to keep some of their Social Security taxes in private investment accounts.

Al Gore's plan keeps tax rates the same and instead "targets working families." Gore's "right kind of tax cuts" only go to families who meet his income criteria and who spend money in the ways he finds worthy like child care, taking care of one's parents, or saving for retirement. No tax cuts for "the wealthy," of course. Following Bush, Gore says he wants to reduce the marriage penalty and estate taxes.

The complexity of Gore's tax remodeling is mind-numbing. Married couples, for example, only escape the marriage penalty if they use the standard deduction (no itemization), which excludes the 54 percent of families who itemize. Even for families who do not itemize, only those under $60,000 a year get the tax break.

And the $2,000 a year Gore wants taxpayers to kick into your retirement? The fine print limits it to the "right Americans." You're a right American if your family income stays below $50,000, you retire after 2009 (when Gore plans to leave office), and you do not go to school. Even so, the giveaway is so expensive that Gore must balance the budget by assuming that the most eligible Americans will never use the plan.

To qualify for day-care tax credits, your child must be older than 3, attend government-approved facilities - spending on nannies, neighbors, grandmothers and stay-at-home moms will not qualify - and your family must stay in the proper income class.

Only tax accountants could love Gore's confusing targeted credits that benefit a minority of Americans. The Internal Revenue Service says 56% of income tax payers used a paid preparer for their 1999 return. Gore's class legislation might push that up to 66%.

 

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