Posted on: Friday, January 10, 2003

Bush tax cuts boost the rich — and deficit

The most important argument about the proposed Bush tax-cut plan is whether it is intended to stimulate a lagging economy, or simply to redistribute the nation's wealth.

The distinction is lost on the supply-side economists who have prepared Bush's proposal. Of course it makes the rich richer, they say. That's how you increase the investment that makes the economy hum, creates jobs and eliminates poverty.

But it hasn't been obvious to the lower and middle classes that the benefits are reliably "trickling down" to them. Nor do we see how raising interest rates, as this plan accelerates deficit spending, will help an economy that in recent years has survived mostly because of low interest rates.

It is clear that the same sort of tax-cutting was No. 1 on Bush's agenda long before economic stimulus became a priority. And it's hard to imagine that returning money to the rich would stimulate the economy nearly as quickly or directly as competing proposals from the Democrats, such as one that would allow small businesses to write off up to $50,000 in new investments.

It's usually the case that congressional stimulus programs are too late, anyway. That's especially likely with the 10-year Bush plan. Whatever its shortcomings, the Democrats' plan is a lot cheaper, and almost completely immediate.

One study shows the top 1 percent of earners would get 28 percent of the benefit of Bush's plan, the top 10 percent would get 59 percent and the bottom 60 percent would get 8 percent of the total.

Critics say that Bush is positioning us for an Iraq war that would be fought largely by the poor (because there is no draft), paid for by future generations (because of Bush's mushrooming deficit spending), while the rich would profit handsomely.

The Bush plan is especially hard on hard-pressed states and municipalities. It fails to offer them revenue-sharing to help offset underfunded federal mandates (such as Medicaid, No Child Left Behind, "Felix" and Homeland Security spending). Most will either have to increase taxes or decrease needed services, mostly to the poor. And tax-free dividends, the biggest item in Bush's plan, will penalize states in several ways. They'll be forced to pay higher interest rates on municipal bonds as tax-free stock dividends become more attractive, adding to their already staggering debt service.

Hawai'i should depart from its policy of mirroring federal tax forms to the extent that it should continue to tax dividends as well as estates.

There's a long road and a lot of horse-trading to come before the final stimulus package emerges. We remind Hawai'i's delegation that we sent them to Washington, not to benefit the rich, but the rest of us.