The Taxonomist

Antitax Mania.

GOP presidential hopeful John McCain has recently let it be known where he stands on taxes. He's against them. All of them. According to McCain, "We should all be ashamed of a system that taxes your salary, your investments, your property, your expenses, your marriage and your death." Well, let's see, no income taxes, no payroll taxes, no property taxes, no sales taxes, no inheritance taxes—that about covers it. To be sure, McCain goes on in his statement (you can watch him deliver it at www.freedomchannel.com) to detail a more modest list of specific upper-income tax breaks that he'd push for as president. But obviously these are only the first baby steps in his master plan.

McCain's ultra-antitax stance must have Steve Forbes (R-$$$) gnashing his teeth. Forbes had good reason to believe he had sewn up the antitax vote with his 17-percent flat-rate wage tax proposal, which in its latest incarnation would cut federal revenues by $300 billion a year or more. Meanwhile, Forbes has criticized GOP front-runner George W. Bush for a lack of fervor against taxes, but Bush is hardly a tax-cut slouch. Dubya's version of a Deficit Restoration Act, announced on December 1, looks a lot like the $792-billion tax-cut bill passed by Congress last summer and vetoed by President Clinton, in that Bush targets two-thirds of his tax cuts to the best-off tenth of all taxpayers. But Bush's plan has an even heftier price tag: more than $1.7 trillion over its first 10 years.

Which raises a question: Why are all the leading GOP presidential candidates, not to mention the also-runners, calling for giant tax cuts, given that the public has made its opposition to such tax cuts rather clear? Sure, primaries bring out a party's most fanatical voters, but there will be a general election at some point, as far as we know. Republican governors like George Voinovich of Ohio are begging their party's candidates to get off the tax-cuts-for-the-rich kick for fear of losing ground in the 2000 elections, but those pleas seem to be falling on deaf ears.

Minimum Outrage.
Republican leaders in Congress killed a proposed one-dollar minimum wage increase this fall by insisting on coupling the wage hike with a package of big tax cuts for the wealthy. The House version of the GOP bill ran more than 300 pages--two pages for the bill's title and the minimum wage boost, the rest dedicated to the tax abatements.

President Clinton and most congressional Democrats found this monstrosity unacceptable. It was not just the large cost of the tax breaks--close to $100 billion over 10 years--but also the fact that three-quarters of them went to the best-off 1 percent. "This is an example of something that I think defines the difference between the parties on Capitol Hill," said White House Press Secretary Joe Lockhart.

A Rising Tide Lifts All Yachts.
George Will recently wrote a very odd column either praising or criticizing a proposal by Representative Patrick Kennedy, a Rhode Island Democrat, to give a tax credit of up to $2 mil-lion to anyone who buys a yacht longer than 50 feet. Whatever Will thinks of Kennedy's bill (you really can't tell from the column), it's obviously a dumb idea. But Will uses the topic as a springboard to disparage the "luxury tax" on expensive cars, yachts, planes, jewelry, and furs signed by President Bush in 1990. According to Will, the luxury tax was a fiscal fiasco, raising far less revenue than predicted because it stifled purchases of the taxable luxuries. This bit of right-wing folklore keeps resurfacing, so let's set the record straight again.

When the luxury tax was adopted in 1990, it was expected to raise a total of $119 million in fiscal years 1991 and 1992. Instead, sales of the luxury items were so much stronger than had been predicted that the tax actually raised $474 million over those two years--four times as much as the official prediction. (The luxury tax on everything but cars was repealed effective January 1, 1993, and the car tax is now being phased out.)

The luxury tax may have been a silly way to try to soak the rich. But there's no doubt that it was far more successful than anybody predicted at the time.

How to Spend $42 Million.
Rhode Island legislators have declared dead for now a proposed $42-million-a-year state income tax cut targeted solely to the state's best-off 1 percent. Executives from Fidelity, Hasbro, and other companies had promised 7,500 new jobs if their personal taxes were cut. But that pledge was dropped from the bill's text because many thought the pledge wouldn't be enforceable, while the executives started to worry that it would be.

State lawmakers indicated that testimony by Michael Ettlinger, of the Institute on Taxation and Economic Policy, helped persuade them that tax cuts for the rich might not be the best way to spend $42 million, compared to, say, putting the money into schools, roads, or other public investments.

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