Giving the Boot to the Tax-Cut Era
Politicians say slashing taxes is no longer a vote getter
Americans like Lara Kulpa must drive the White House crazy. Kulpa runs her own search-engine-optimization business, Anubis Marketing, in upstate New York and wonders when Uncle Sam is going to give her a tax cut. "Right now I typically estimate about 25 to 30 percent of my income going for taxes," she says. "I'm single, don't own a home, or [have] any other major deductions other than those for my business, so for me, that's a little high. ... We've been hearing about tax cuts forever, and yet personally, I've not seen any."
Of course, despite Kulpa's comments, the economy has seen some $2 trillion worth of tax reductions enacted during the past six years, with investors, married couples, small-business owners, and wage slaves all getting cuts. President Bush's 2001 tax cuts lowered marginal tax rates, increased the child tax credit, and provided "marriage penalty" relief, among other provisions. The 2003 edition cut rates on capital gains and dividends while accelerating when the 2001 rates cuts would fully take effect.
But unfortunately for Kulpa and any other Americans hoping for sweeping tax cuts of the Reagan and Bush eras in the futuremuch less anything more radical such as totally scrapping the current tax code and instituting a flat tax or a consumption taxthey will probably be disappointed.
"Fiscal [realities] and the political climate make that model of tax reform unrealistic," says Ramesh Ponnuru, a senior editor at the conservative National Review magazine and author of a controversial article advocating that the GOP push for family-focused tax cuts instead of more broad-based reductions.
Ponnuru isn't just referring to the obvious reality that Democratswho haven't pushed for big tax cuts since JFK was sitting in the Oval Officenow control Congress and have a pretty good shot at expanding their dominance in 2008. Congressional Democrats, in their budget proposal presented earlier last month, are apparently attempting to save only Bush's 2001 child tax credit and marriage-penalty relief provisions.
New pay-as-you-go budget rules mean advocates would need to find hundreds of billions in budget savings to keep the cuts in marginal rates, as well as the 2003 capital gains and dividends cuts past 2010, when they're due to expire. It would cost $182 billion to keep all the marginal tax cuts for 2010 and 2011, $32.5 billion to keep the investment tax cuts, and $27 billion to keep the child tax creditand all that is on top of the $50 billion a year it will take to halt the increasing reach of the alternative minimum tax.
What's more, budget hawks may well push for higher taxes to help pay for healthcare and Social Security reform. (The baby boomers start reaching full retirement age in 2012, and Social Security costs start to exceed revenues in 2017.) At a recent Democratic presidential candidate healthcare forum organized by the Service Employees International Union, John Edwards said it would be "unrealistic" to think that health insurance coverage could be expanded without raising taxes. The common beltway wisdom: "After 2008, the default budget position is going to be higher taxes," says policy analyst Thomas Gallagher of ISI Group in Washington, D.C.