Now that John McCain has joined George W. Bush in presenting a major tax-cut plan, the two GOP candidates are engaged in a debate that is, by conservative standards, unusual: Whose proposal does the most for taxpayers in the middle and lower portions of the income scale? Each candidate claims that the other's plan does little or nothing for these taxpayers. In this case, actually, both candidates are right.
In his 1997 tax deal with Congress, Bill Clinton helped add multiple new items to our tax forms, such as tax credits for children, deductions and credits for college expenses, a new flavor of IRAs, medical savings accounts, and more--along with a variety of eligibility rules and phase-outs. The IRS managed to squeeze all of these onto the 1040 form, but it'll be hard to make space for any more lines without resorting to obituary-size type and a magnifying glass.
Peter G. Peterson, as he cheerfully admits, is not a member of the middle class. He's a rich Republican Wall Street investment banker. But in his crusade against deficits and entitlements, he adroitly poses as a champion of the middle class.
As soon as the U.S. Supreme Court chose George W. Bush as our next president, the stock market fell precipitously. Wall Street analysts who had been loudly insisting on the need for a Bush victory suddenly began to find all kinds of new reasons for the market's problems--poor corporate profits, weak consumer spending, energy price jumps, and high interest rates, among others. All plausible. But few analysts were willing to admit the obvious: Bush's plans to reverse the tight fiscal policies of the Clinton years with big upper-income tax cuts and hugely expensive privatization of Social Security have made Alan Greenspan and the Federal Reserve more reluctant to cut interest rates.
People often talk about how the federal income tax should not push people deeper into poverty. One way to measure how well the system performs in this regard is to look at how much a person or family can earn before income taxes kick in.
Current law's combination of standard deductions, personal exemptions, and credits yields some fairly odd results. This year, for a single person without children, the income tax threshold is $8,275; in other words, a person in this category will not pay income tax on the first $8,275 of wage earnings. For married people without children, the threshold is $12,950, or $6,475 per person--a marriage penalty.