To hear President Bush tell it, his huge 2003 tax cuts will be a boon
to regular American families all across the country. But take a look back:
If the results of Bush's even larger 2001 tax cuts are any indication -- and
they are -- then the real outcome for the American people will be more
boondoggle than boon.
The strange and twisted fact is that while Bush's policies are producing
a financial windfall for the richest among us, many middle- and working-class
families are actually being stuck with a net tax increase. In Ohio,
for example, a family with an income of $66,000 and two children attending
public universities paid $864 more in taxes and fees in 2002 than it did
before Bush's 2001 tax cuts. For a family in Pennsylvania with an annual
income of $44,000 and a son or daughter in a state college, the net increase
was $185.
Sound like a bait and switch? It is. It's the perverted outcome of the
president's relentless drive to slice federal revenue while, at the same
time, imposing new, unfunded mandates on state governments -- from new
requirements to ensure our homeland security to efforts to improve special
education and leave no child behind in school. Those mandates have been
handed down even as the stagnant national economy has dried up state and
local coffers. And the administration and the Republican Congress have
been reluctant to offer any assistance. (The $20 billion for states and
localities included in the final 2003 tax package at the insistence of
moderate Republicans and Democrats is offset by reductions in spending
on the state-run Children's Health Insurance Program and the federal Supplemental
Security Income program. So the cash offer hurts as much as it helps.)
Republican and Democratic governors across the country have feverishly
cut discretionary spending to try to keep their budgets in balance. But
that hasn't been enough. They have had little choice but to raise taxes
and fees, too.
In a study of seven states, the Progressive Policy Institute reviewed
the impact of state tax and university tuition increases. In all cases,
the study found that new state tax and fee increases raised taxes for
many middle- and working-class families more than Bush's 2001 federal
tax cuts lowered them. According to the analysis, the typical household
in Florida, Illinois, Michigan, Missouri, Ohio, Pennsylvania, and Wisconsin
will pay an average of $84 more in state taxes and fees this year than
when Bush entered office at the beginning of 2001. On top of that, families
with students in public universities will have to pay $470 more in tuition
per year. Add in property taxes, and the typical family in each of these
seven states will be paying $590 more in state and local taxes and fees
in 2003. Subtract their meager share of Bush's 2001 tax cut and the net
outcome for these middle- and working-class families is $90 more out of
pocket this year than they were paying when Bush took over the White House.
Families with kids in state colleges and universities take the hardest
hit. That Ohio family making $66,000 per year with two children at public
universities received $1,004 from Bush's 2001 federal tax cut, but saw
its state taxes and fees rise by $1,868. The Pennsylvania family making
$44,000 with one child in a state college received $561 from the Bush
tax cut but saw its state taxes and fees rise by $746.
Many governors have mightily resisted raising taxes. To pay for the things
Washington demands and still provide some of what their constituents need -- like
safe streets, good schools, and roads -- most have focused first on
slicing into state expenditures. In Virginia, for example, Gov. Mark Warner
eliminated 6,000 positions in state government to help close a $6 billion-dollar
budget shortfall. In Pennsylvania, recently elected Gov. Ed Rendell has
proposed a 5 percent across-the-board cut in the state's operations budget.
And in Michigan, Gov. Jennifer Granholm has directed every department
of state government to reduce its vendor contracting expenses by at least
7 percent -- a potential savings of more than $100 million.
But Bush has repeatedly insisted on passing the tax buck to the states
and localities. Since the beginning of the Bush administration, because
of revenue shortfalls and reductions in federal support, 32 states have
been forced to raise net taxes and fees by a total of $16.2 billion. And
more increases are on the way. The Center for Budget and Policy Priorities
estimates that, despite a combination of tax increases and spending cuts
(including the elimination of 20,000 state employees' jobs), the states
still face budget shortfalls this year of $70 billion to $85 billion.
Consequently, 22 governors have already submitted budgets proposing to
raise taxes again this year.
Disguising taxes as fees. At the local level, county and city
governments have been raising taxes as well. Last year alone, property
tax collections were rising more than 10 percent, with the average household
paying $36 more than the year before. In some places, the increases have
been much worse. In Atlanta, for example, city property taxes rose 50
percent in 2002.
Other local taxes and fees are rising, too. In Florida, where Gov. Jeb
Bush has adopted his brother's economic strategy of passing the buck with
underfunded mandates and irresponsible tax policies, Miami-Dade County
last year was forced to approve $185 million in new taxes to improve transit,
child-care, education, and health programs. (Of course, when he can call
it a fee, Gov. Bush has also been more than willing to raise taxes on
his own. For example, he approved a $140 per-student increase in tuition
fees at Florida's public universities, and a state commission is considering
an additional 58 percent increase -- $1,500 per student -- over the
next 10 years.)
How can this be happening? The White House claimed that the average family
would receive $1,600 in tax relief from the 2001 federal tax cut. But
that was fuzzy math -- the total tax cut divided by all the taxpayers.
That's not how it was paid out; the vast majority of that cut went to
the wealthiest Americans. According to Citizens for Tax Justice, the top
1 percent of American families -- those with incomes over $300,000 -- received
40 percent of the tax relief under the 2001 Bush plan, more than $40,000
apiece. (In the 2003 giveaway, those same families will receive 52 percent
of the total.) The average tax benefit from the 2001 cut for those in
the absolute middle of the income distribution scale was less than $500.
And low-income working people, especially single parents, received nothing.
Meanwhile, the president's economic plan has done nothing to spur economic
growth or keep incomes from falling. Despite his claim that lower marginal
rates would spur growth, the country has thus far seen only a "jobless
recovery" -- and a tentative one at that. The unemployment rate
has reached 6 percent, and future retirees have lost trillions of dollars
in the stock market. Recession and stagnation have become the hallmarks
of the Bush economic record. Yet the president keeps pushing his failed
supply-side economic strategy.
Blind embrace. Things will undoubtedly continue to get worse for
the states, not better, as Bush keeps pressing for more federal tax cuts.
Most economists agree that the dividend tax break that is the centerpiece
of this year's tax cuts will do nothing to spur investment in the high-tech
industry or among those small businesses that produced economic growth
and higher state revenues in the 1990s. Worse, the dividend tax cuts will
cost states billions in lost funds. That's because lowering taxes on dividends
draws funds away from the bond market, as dividend-paying stocks become
more attractive investments. To compete for investor dollars, entities
issuing bonds -- including state and local governments -- must offer
higher interest rates. In the long run, that means states will have to
pay investors more to be able to build roads and schools and to make other
needed infrastructure improvements.
Bush's blind embrace of the discredited supply-side economic dogma -- and
the ill harvest those policies are now reaping -- are in striking contrast
to the successes of the Clinton-Gore formula of the 1990s, which emphasized
fiscal responsibility, limited government, and targeted investments in
technology, human capital, and infrastructure. That strategy spurred a
nine-year period of economic growth that allowed states to reduce the
tax burden on their constituents by a combined total of $40 billion per
year.
President Clinton managed to provide targeted federal tax cuts, create
and increase the budget surplus, and expand assistance to state and local
governments through key programs such as the Community Oriented Policing
Services (COPS) and the Children's Health Insurance Program (CHIP), and
still cut the size of government.
Bush should have learned the lessons of Clinton's economic strategy.
He should have pushed for smaller, more progressive tax cuts that were
designed to be fiscally responsible and fair. Instead, he made his cuts
with a meat cleaver, shifting responsibility to the states. The end result
has been an invisible hand picking America's pockets.
Blueprint Keyword: extra middle class
