The battle over how best to boost a sagging economy became a matter of public debate last week with Democrats in the House of Representatives and President Bush introducing competing plans.
The Democrat’s plan provides $136 million to pay for a 26-week extension of unemployment benefits, a tax rebate of up to $300 for every working American, increasing the write-off on new investments for small businesses and providing $31 billion to states and local governments to help defray the cost of domestic security, Medicaid, highway projects and other critical needs.
House Minority Leader Rep. Nancy Pelosi (D-Calif.) called the program “fair, immediate and effective,” adding that it represented a “consensus” reached by the House Democratic Caucus in a series of meetings last December. She said the caucus would present its long-range economic program on Jan. 8.
By way of comparison, the Bush plan, with an estimated cost of more than $670 billion, will pump at least $300 billion this year into the bank accounts of America’s richest families. It eliminates the estate tax and taxes on dividends.
Bush’s plan also accelerates the upper-income tax cuts due in 2004 and 2006 and makes them permanent. Meanwhile, it provides less than $100 billion to relieve the hardships facing the 10 million workers who are looking for jobs and cannot find them.
The Center on Budget Policy and Priorities has calculated that the approximately 225,000 tax filers with annual incomes of over a million dollars will receive roughly as much benefit from the plan as will the 120 million filers with incomes below $100,000. According to the Tax Policy Center, a non-profit research group run by the Urban Institute/Brookings Institution, people earning more than $316,895 annually would save $13,243 in taxes under the Bush plan, while people with taxable incomes of $21,360 would save $47.
Reactions to the Bush plan by economists interviewed for this article ranged from “basically awful” by Robert McIntyre, director of the Institute on Taxation and Economic Policy, to Dean Baker’s admonition not to refer to the Bush program as a “stimulus program.”
“Apparently the president views weak economic growth and rising unemployment as yet another opportunity to give more money to rich people,” Baker, co-director of the Center for Economic Policy Research, told the World.
John Miller, a contributing editor to Dollars and Sense magazine, said the “real killer” in the Bush program is the fact that the 34 million workers who earn too little to pay income tax are left out entirely. Miller said those who bemoan double taxation of dividends ignore the fact that less than half of corporate profits are taxed even once.
Many establishment economists, including Diane Swonk, chief economist at Bank One Corporation, are skeptical that the Bush plan will provide much of a jolt to either investment or consumer spending. “It is not clear how the plan is going to stimulate the economy in the near term,” she told The New York Times. The same article quotes David Rosenberg, an economist at Merrill Lynch, who told the Times the program would increase economic growth by less than one quarter of one percent.
Unions and children’s advocacy groups were equally harsh in their condemnation of the Bush program.
The American Federation of State, County and Municipal Employees said it is “insulting that the president is trying to pass off yet another tax cut for the wealthy” as a boost to the economy. “The Bush recession is already crushing America’s working families, and now the president wants to bury them.”
Marian Wright Edelman, president of the Children’s Defense Fund, said the cost of the Bush administration’s tax cut proposal is enough to provide comprehensive health care for all 9.2 million uninsured children and fund Head Start for all the unserved eligible and disadvantaged preschool children in need of comprehensive services that prepare them for school and a productive future.
Edelman called the Bush tax cuts “strikingly irresponsible,” and “borrowed money we don’t have to spend where it isn’t needed,” adding that “the same administration that starves and freezes children’s services is willing to heap more money on millionaires.”
President Bush, who had dividend payments of $43,805 in 2001, would have saved $16,511 if his proposal to eliminate taxes on dividends had been in force. Vice President Cheney, who raked in $278,103 in dividends that year, would have saved $104,833.
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