Grossly Unfair: Evaluating the Bush Proposal
By Ron Sider, President
Evangelicals for Social Action
Editor`s Note: Although an amended version of President Bush`s tax cut has just been passed and signed into law, this critique is still applicable, especially coming from one who has been a strong supporter of the President`s "faith-based" initiatives. This editorial was first published in the May/June 2001 Prism Magazine, the journal of ESA, which may be accessed at 800-650-6600 or esa@esa-online.org.
I consider the President`s tax cut proposal blatantly unjust. If that sounds partisan, let me remind you that I try hard to evaluate political agendas in a non-partisan way. The postman has recently delivered some rather angry letters condemning my strong support for President Bush`s new emphasis on faith-based initiatives. So be it. I think the President`s new emphasis on FBOs and civil society is right and important-perhaps even of far-reaching, historic significance.
But some of his tax proposals are dead wrong. Forty percent of his tax cut would go to the richest one percent. The bottom 80 percent get only 29 percent!
President Bush wants to use about $1.6 trillion of the projected federal budget surplus for several key changes in the tax code. Two of those measures-eliminating the marriage penalty in the income tax code and expanding the child tax credit from $500 to $1000-are indeed "pro-family" and "pro-marriage" and are essentially wise. Abolishing the estate tax and dropping the income tax rates for everyone are quite another matter.
Lowering the lowest income tax rate from 15 to 10 percent helps lower-income workers. But reducing the top income tax rate from 39.6 percent to 33 percent and completely abolishing the estate taxes provides a huge windfall to the wealthiest Americans.
It is true that the wealthy pay a lot more taxes than others. But even though the Treasury Department reports that the top one percent pay only 20 percent of all federal taxes, Bush wants to give them 40 percent of the tax cut. The bottom 40 percent get only four percent of Bush`s tax cut-i.e., about 1/9 of what the richest one percent receive. The bottom 80 percent receive only 29 percent.
The more closely you look at what has been happening in the last few decades, the more outrageous this 40 percent tax cut for the richest one percent appears. The income of the top one percent has grown vastly more that the rest of the population. From 1989 to 1998, the after-tax income of the bottom 90 percent grew by only five percent, but the richest one percent enjoyed a 40 percent jump. That means the income of the top one percent grew eight times faster than the bottom 90 percent. (That explosion of after-tax income happened even though President Clinton and Congress raised the highest income tax rate to 39.6 percent in 1993-a small tax increase that apparently did not discourage investment, harm the economy or prevent the richest from significantly widening the gap between themselves and everybody else.) Furthermore, the total effect of changes in the tax laws between 1977 and 1998 has already lowered the federal tax payments of the top 17 percent of families by over 14 percent ($36,710) whereas the bottom 80 percent of families saw their average tax payments fall by just 6.9 percent ($335).
It gets still worse. President Bush says his plan is fair because it lowers the tax rates for everyone. In fact, the poorest 31.5 percent of all families do not get a cent from Bush`s proposal (even though 80 percent of them are working) because their incomes are so low they do not pay any federal income taxes. (They do pay substantial payroll taxes, but the tax cut does not change that.) More than half of all black and Latino children are in families that would not benefit a cent from this plan.
Abolishing the estate tax is also wrong. Of course it needs to be revised so that children can inherit family farms and small businesses (that would cost only a fraction of what abolishing it will cost). When fully implemented in 2010, the repeal of the estate tax would provide a mere 64,000 estates with a tax cut of $55 billion-which is the same amount that the poorest 74 percent of all U.S. families (192 million people) would receive in tax cuts.
Abolishing the estate tax is misguided for several reasons. It would discourage charitable giving and thus undermine civil society. Wealthy individuals today can avoid estate taxes on wealth they give to charitable organizations. Consequently, abolishing the estate tax would almost certainly reduce charitable giving to a vast array of private agencies., including precisely the private, non-profit social service agencies in civil society that President Bush (wisely) wants to strengthen and expand. His proposal on the estate tax fundamentally contradicts his desire to expand the role of civil society in general and FBOs in particular in combating poverty-which is why John Dilulio, the head of Bush`s new White House Office on Faith-Based and Community Initiatives, recently criticized abolishing the estate tax. Fortunately, some of the wealthiest Americans (including Bill Gates` father) have launched a campaign to preserve the estate tax!
I work with the following principles as I search for a just tax code:
Taxpayers in the same circumstances should pay the same taxes
People should be taxed according to their ability to pay (we see this basic principle in the Old Testament law which provides for different types of sacrificial offerings based on a person`s wealth)
Tax structures should strengthen two-parent families and marriage
Tax structures should encourage work and responsibility and strengthen the poorer members of society
The tax system should promote a healthy, sustainable economy
Cutting the present income tax at a time of large budget surpluses is not misguided, but the changes and cuts must be allocated more fairly. Much more of our budget surplus should go to empowering the working poor. Millions of Americans work full time without earning enough to even get up to the poverty level. We know how to change that. The Earned Income Tax Credit (EITC) rewards work, encourages responsibility, and lifts millions out of poverty. (For every dollar a low-wage worker earns, she receives 40 cents as an income tax credit. And if she owes no federal income taxes, she gets the money anyway because this tax credit is refundable.) We should raise it significantly.
Unfortunately, the present EITC has a huge marriage penalty. Two single workers with children who are living together but remain unmarried both receive a substantial EITC, but if they get married, they lose hundreds, even thousands of dollars. President Bush`s plan eliminates the marriage penalty for the middle class but does nothing to end it for poor workers getting the EITC. I agree with William W. Beach of the Heritage Foundation who wants to eliminate this marriage penalty by changing it so the phase-out range for married couples is twice that of singles. Of course that has a price tag, but we can easily do it if we do not give the richest one percent such a huge cut.
I endorse President Bush`s expansion of the Child Tax Credit from $500 to $1000 for every child. But the devil is in the details and his proposals need major modification. Currently, this tax credit starts to phase out at $110,000 for couples and $75,000 for single parents. Bush wants to increase that to $200,000! Come, now. Do couples earning between $110,000 and $200,000 need another $500 tax credit?
Even worse, the child tax credit is not refundable so it does not provide a cent for poor families who owe no federal income taxes. This child tax credit only helps the middle class! The poorest one quarter of all children would not benefit at all, even though two-thirds of those children live in working families that pay substantial federal payroll and sales taxes. In fact, almost half of Bush`s expanded child tax credit would go to the richest one-fifth!
Again, there is an easy solution. Make it refundable as the Children`s Defense Fund proposes. But it is crucial to make the increased (and refundable) child tax credit available only to taxpayers who have income from work (so that it is not dismissed as just an expansion of welfare). In fact, why not raise this kind of child tax credit to $1500 per child? Again, there is a cost, but there is plenty of money to do that if the bonanza to the richest one percent is cut.
We should also change the Dependent Care Tax Credit. Currently, two-parent families where both work outside the home benefit from the Child Care Tax Credit. But if one parent stays home to care for the children, they lose the credit. In fact, they pay more taxes to subsidize child care for families where both work away from home. That`s an anti-family tax policy if I ever saw one. Any family with one parent working should be eligible for the child care tax credit even if one parent stays at home with the children.
Furthermore, the child care tax credit is not refundable. Again, it only helps the middle class. Let`s make it refundable.
In addition to the above, there are a number of other important things we need to do to make this nation more just. The elderly need prescription-drug coverage. The 44 million Americans without health insurance need to be covered. Social Security and Medicare require changes that will be costly.
Yes, some tax cut is desirable. But justice demands that the middle class and working poor should receive far more of the benefits than in the Bush proposal. President Bush`s proposal is simply unfair.
Editorial Postscript: In a study of the new tax law signed by President Bush, the Citizens for Tax Justice, a nonprofit research institute, reported that nearly 40% of American adults will not get a full refund-34 million American adults (26%) will get no rebate and another 17 million (13%) will get less than a full rebate of $300 for individuals or $600 for couples. These are mainly people with incomes less than $25,000.
