The Republican Agenda for 2006: Tax Cuts for a Favored Few

NYT Editorial

A puzzling aspect of Congress's latest tax-cut package is why its overwhelmingly Republican supporters believe that its passage will be a big win for them and their party. There's nothing in it for most Americans, and yet all Americans will pay its cost: $69 billion over the near term. That price tag will be reflected in incessant budget deficits, which will further impair the government's ability to meet Americans' needs, and force the government to borrow more, mostly from abroad, to plug the budget gap.

The bill, which was passed yesterday by the House and is expected to clear the Senate as early as today, has two main provisions. The first, and dearest to the hearts of President Bush and his allies in Congress, is an extension of the temporary low tax rates on investment income. The top 10 percent of income earners will get almost all of the benefits, and everyone else will get crumbs.

To justify the giveaway, President Bush and Congressional Republicans insist that tax cuts for investors benefit everyone — and pay for themselves — by stimulating economic growth. That assertion is seriously delusional. Economic theory suggests that a fraction of the tax cuts' cost could, perhaps, be offset by higher growth, all other things being equal. But when a nation must borrow to pay for tax breaks, as is the case in the United States today, any ability of tax cuts for investors to spur growth is severely diminished.

The second major provision will provide temporary relief for taxpayers who have been scorched of late by the alternative minimum tax.

Unlike investors' tax cuts, relief from the alternative tax is needed. But the short-term fix obscures a much bigger problem that is of Congress's own making.

The alternative tax has been unfairly afflicting taxpayers who are nowhere near the multimillionaire level, which it's supposed to target. Why? In part, the problem stems from the Bush tax cuts of 2001 and 2003. The tax code is wired to detect when a filer's tax bill is very low relative to income, and to use the alternative tax to raise the tax bill. So the more that tax cuts reduce a filer's liability, the greater the chances that the alternative tax will kick in.

Lawmakers refuse to fix the problem once and for all because as long as the alternative tax lingers on the books, official budget estimates include huge amounts of revenue that it's supposed to raise. Of course, those outsized sums will never actually materialize because Congress keeps passing stopgap relief measures. But the revenue is counted anyway, allowing the administration and Congress to project far smaller budget deficits than will actually be the case.

After five years of duplicitous fiscal policy, Americans are catching on. And Republicans who see tax cuts as an automatic vote-getter may be in for a rude shock. Some two-thirds of Americans now say that the president's priorities, which clearly include ever more tax cuts, do not reflect their own.