Bush's "Progressive" Tax Plan
"The Bush tax cuts benefit all Americans, but reserve the greatest percentage reduction for the lowest income families." (12/1/99)
"Our tax code, in the end, will be more progressive." (4/11/00)
These Bush claims are real whoppers. In fact, more than a quarter of all Americans would get nothing at all from Bush's tax cut plan. As a share of federal taxes paid now, the Bush plan amounts to a 5.9 percent reduction for the bottom fifth, an 8.4 percent reduction for those in the middle, and a 15.7 percent tax cut for the best-off 1 percent. As a result, the tax code will be significantly less progressive if Bush's tax plan is enacted.
To assert that his tax cuts favor those at lower income levels, Bush chooses to misleadingly focus on only one federal tax, the progressive personal income tax. But most of the federal taxes that lower- and middle-income people pay are payroll taxes and excise taxes, neither of which are affected by Bush's plan.
Probably the best ways to measure the effects of any proposed tax cut is to look at it (a) in average dollar terms, (b) as shares of the total tax cuts, and (c) as shares of income. By all these measures, Bush's plan is clearly targeted at the upper end of the income scale.
The Bush Tax Cut: Who Gets What
|Income Level||$ Value of the Cut||Share of the Cut||Cut as % of Income|
A Silly Sales Tax
To lead up to Tax Day 2000, the House Ways and Means Committee invited proponents of some of the most far-out consumption tax schemes to present their plans at two days of hearings. The wackiest witness of all had to have been Leo Linbeck, Jr., Texas multimillionaire and head of a group called Americans for Fair Taxation, which wants to replace all income taxes, estate taxes, and payroll taxes with a national sales tax. Linbeck claims that he can do all this, and provide rebates to the poor to boot, with a sales tax rate of only 23 percent.
Baloney. That 23 percent tax rate is both dishonest and impossible. For one thing, when Linbeck says 23 percent, he actually means 30 percent. He came up with the 23 percent figure by dividing the sales tax by the cost of a purchase plus the tax. So if the tax on a $100 purchase is $30, Linbeck prefers to call it a 23 percent "tax inclusive rate" ($30 divided by $130).
And that's only the beginning of Linbeck's credibility problems. Almost a third of his sales tax revenues are supposed to come from taxes the government will pay to itself. For instance, build a road, and pay yourself a tax. Buy some planes, and pay yourself some more. That's silly. So is his idea that we could draw a quarter of the remaining sales tax revenue from taxes paid on things like church services, free care at veterans' hospitals, and a variety of hard-to-tax financial services like free checking accounts.
Taking these factors into account, the sales tax rate would have to climb to well over 50 percent to break even. At that point, there would probably be lots of cheating, so the rate would have to go higher still.
Even leaving aside the fundamental inequity of a sales tax (it's a regressive tax that disproportionately burdens the poor), I'd wager that most people would choose their current income tax rate over a sales tax of more than 50 percent.
--Robert S. McIntyre