According to press reports, Republican interest groups are "salivating" over a proposal by Senator Edward Kennedy to reduce the size of the Bush tax cuts. The Massachusetts Democrat wants to eliminate about $280 billion of the $1.35 trillion in tax reductions enacted last year. Kennedy calls for scrapping the cuts in the top three income-tax rates that are currently slated for 2004 and 2006. He also wants to drop the scheduled repeal of the estate tax, offering instead to exempt all but the biggest 0.3 percent of estates.
"Kennedy's giving us just the opening we need," Daniel Mitchell of the Heritage Foundation gleefully told The Washington Post. Republican strategist Grover Norquist asserted: "If the 2002 election is about raising taxes, we will have a Republican Senate."
It seems that the right is preparing to run a disinformation campaign of enormous proportions about what the relatively timid Kennedy plan would actually mean. Here are a few salient facts.
- Fully 97.5 percent of all taxpayers have no direct personal stake in keeping the tax cuts that Kennedy wants to eliminate. In other words, the vast majority of Americans will get every penny of their Bush tax cut even if the Kennedy plan is enacted.
- Some 95 percent of those who would pay more taxes if Kennedy's plan is adopted are in the top 1 percent of the income scale.
- Broken down by income group (in 2001 dollars, after the full phase-in), the average tax cut forgone annually under the Kennedy plan is zero for the lowest 20 percent, zero for the next-highest 20 percent, zero for the middle 20 percent, zero for the next 20 percent, $17 for the next 15 percent, $432 for the next 4 percent, and $42,949 for the top 1 percent.
Is there any chance that the propagandists of the right will honestly concede these facts when they try to make their case against the Kennedy plan? Recent history doesn't offer much encouragement. Remember Bill Clinton's supposed "biggest tax increase in history" in 1993? The fact that Clinton's tax hike wasn't even close to the biggest and that it hardly affected anybody but the very rich didn't stop the right from disingenuously attacking it as a scourge on the middle class -- with considerable political success.
President Bush has already weighed in with his view that canceling any of his scheduled tax cuts would be a "tax increase." Speaking shortly after Kennedy announced his plan, Bush also said: "I think raising taxes in the midst of a recession is wrong economic policy -- it would be a huge mistake."
The president is obviously very gloomy about the economy, given that the tax cuts Kennedy wants to repeal aren't even scheduled to begin to take effect until 2004, with 85 percent of the forgone tax cuts affecting only fiscal 2007 and thereafter.
I suppose one could make a strained argument in defense of Bush's assertion that repealing tax cuts that haven't yet taken effect amounts to a "tax increase." But the counterarguments -- that Kennedy's plan wouldn't mean higher taxes on anybody compared to now and wouldn't even repeal any future tax cuts for 97.5 percent of us -- are more powerful. Indeed, as Jonathan Chait recently pointed out in The New Republic, under Bush's logic, the biggest future tax increase on the horizon is the one Bush himself signed last year: The scheduled "sunset" provision eliminating of all of the Bush tax cuts in 2011 -- after they've taken effect!
Anyway, it looks as if we're going to face lies and tortured logic from the right about even the most modest efforts to put the federal government back on a path to fiscal responsibility. That's nothing new. But why are the rightists so confident that the media will let them get away with it?
Are All Rich People Small Businessmen? Last year, President Bush tried to defend his then-proposed cut in the top income-tax rate by preposterously asserting that "nationwide there are more than 17.4 million small-business owners and entrepreneurs who stand to benefit from dropping the top rate from 39.6 to 33 percent." That bogus statistic was widely ridiculed once it was pointed out that fewer than one million taxpayers are actually in the top income-tax bracket -- and only 180,000 of those filers report small-business profits.
Only slightly chastened, now comes Larry Lindsey, Bush's ultra-macro economic adviser, who claims that Ted Kennedy's proposed freeze on the top three tax rates will primarily hurt "small businesses" and "more than seven million returns are likely to be affected."
Since only 3.3 million taxpayers in total would be denied future tax breaks by Kennedy's plan, Lindsey's estimate that seven million small businesses would be hurt is suspicious. But it gets worse: As it turns out, the high-income taxpayers affected by the Kennedy plan get 53 percent of their reported income from wages and most of the rest from investments. At most, only about 10 percent of their earnings can plausibly be characterized as small-business profits.
It is often funny to watch the Bushies pretend to be the defender of the little guy. But it's not so funny if people actually believe them.
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