The Taxonomist

Teaching John McCain



John McCain says he wants to spend $1 billion a year to give America's "best" million K-12 teachers tax-free bonuses averaging $1,000 each. It's a strange idea on its face, given all the pitfalls in trying to determine which of the nation's 3.1 mil-lion teachers should qualify. McCain suggests that each state compile a list of its best teachers (public and private) and send it to Washington. States in turn would presumably have to rely on local schools for the first round of information and then find a way to compare teachers in different schools and areas. Even if this arduous process costs only, say, $300 per evaluated teacher, it would take close to $1 billion in administrative overhead to pay the $1 billion in bonuses.



But the plan gets even weirder. To assuage antigovernment Republican primary voters, McCain plans to structure his teacher bonuses as a 25-percent credit against federal income taxes. Details haven't been worked out, but because the income tax is progressive, this approach seems to mean that the highest-paid "best teachers" would get the biggest bonuses. For instance, a talented single-parent teacher making $25,000 (and paying no federal income tax) might get no bonus, while a married teacher making $50,000 with a lawyer spouse could qualify for $3,500 or more. New York teachers would get much bigger bonuses than Mississippi teachers. And so on. Maybe these odd results make the case against embedding spending programs in the tax code--but they certainly suggest that targeting a government spending plan to antigovernment voters is doomed to have perverse consequences.



George Bush's priorities



George W. Bush defends his expensive tax cut plan as a boon for the working poor. He claims that reducing tax rates on low- and moderate-income families who now get the Earned Income Tax Credit (EITC) is "one of [his] highest priorities." In fact, Bush does offer tax relief to some of the 13.9 million EITC families--totaling $2.6 billion a year and averaging $182 per family.



Note, however, that Bush's $2.6 billion in tax breaks for moderate-income working families amount to only 1.5 percent of the total annual cost of his tax plan. In contrast, Bush targets $105 billion in annual tax cuts--62 percent of the total--to the best-off 13 million taxpayers. Obviously, some high priorities are higher than others.



Al Gore takes a hike



Al Gore has lately bashed Bill Bradley for refusing to rule out a tax hike to pay for his expensive health care plan. But the vice president seems to have forgotten one of his own biggest achievements. In their 1992 campaign, he and Bill Clinton promised a tax increase (on the rich), and the tax hikes they pushed through Congress in 1993 (with Gore casting the deciding Senate vote) helped pave the way for our current era of prosperity and budget surplus.



Alan Keyes's moral imperative



Talk show host Alan Keyes, who is also running for president, wants to abolish the income tax (or, as he calls it, "the slave tax") in favor of a national sales tax. It's a "moral imperative," he says. The key issue for Keyes is freedom. "Instead of waiting upon the whim of politicians and bureaucrats" under the income tax, he says, "we will control our own tax burden. ... An excise tax system would mean that each citizen would decide what his tax burden was going to be." In other words, we can cut our tax bill down to lit-tle or nothing, by simply choosing not to buy food, clothing, shelter, and so on. Or, if starving and going naked are unpalatable, under Keyes's plan we can simply pay a lot more in taxes than we do now so the very rich can pay a lot less. Some "moral imperative."



Oregon's southern strategy



Voters in Oregon will soon get to decide whether to eliminate the $3,000 cap on the state's income tax write-off for federal income taxes. The Institute on Taxation and Economic Policy calculates that if the $3,000 cap is removed, two-thirds of the resulting tax cuts would go to the best-off 5 percent of Oregonians, and Oregon's modestly progressive tax rate structure would be turned on its head. Effective marginal income tax rates on families of four would peak at 9 percent on taxable income between $12,000 and $22,000 and then would gradually decline to just 5.4 percent above $213,000. Currently, only Alabama and Louisiana allow an unlimited state tax deduction for federal income taxes, causing some Oregon tax-fairness advocates to label the ballot initiative "The Alabama Plan."





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