AUSTIN, Texas -- One interesting aspect of the Seriously Dumb Tax Cut we are watching develop in Washington is that we are simultaneously witnessing the effects of Seriously Dumb Tax Cuts at the state level. The states are plotzing right and left, caught in hideous binds -- whether it is better to release dangerous prisoners or cut back the schools, cut back health care for kids or nursing homes for old folks.

Politically, it's notoriously difficult to oppose tax cuts precisely because the trouble doesn't show up until after the next election, but this time we have are having our noses rubbed in the results even as Bush proposes to do it again at the federal level.

And what a tax cut it is. According to Citizens for Tax Justice, the wealthiest 1 percent of taxpayers, those who make over $356,000 a year, will get almost 50 percent of the benefit of eliminating the tax on dividends and 45 percent of the money from accelerating the rate cuts. The 80 percent of the households making less than $73,000 a year would get less than 10 percent of the new tax breaks.

The Bushies have various ways of justifying this monstrosity, none of which holds up under scrutiny. The first claim is that the rich pay more in taxes in the first place. Well, yeah, they do: They have more money. The richest 1 percent have 18 percent of all the pretax income and they pay 36 percent of all personal income taxes. But one of the many disingenuous tricks with statistics you will see used by the Soak the Poor school is to ignore the rest of the tax burden. Most of us actually pay more in payroll taxes than we do in income taxes, but FICA taxes cut OFF at $87,000 -- you make more than that, you don't have to pay on the rest. And of course the sales tax is notoriously regressive -- rich families and poor families alike pay the same sales tax on a refrigerator, but it's a much bigger chunk of the income of the poor family.

Despite all the screaming and yelling, the progressive income tax is the fairest form of taxation ever invented (unless you want to count the wealth tax used by most European countries). When Dwight Eisenhower left office, the highest marginal tax rate was 95 percent and no one thought Ike was a communist. It's now down to 38.6 percent and due to drop to 35 percent. For 70 years, the income tax has made at least part of the total tax picture here progressive, rather than regressive. It's not only unfair to change that, it's stupid.

Bush is now arguing that we need a tax cut because the economy is in recession. Originally, he argued for a tax cut because the economy was so good. It is true that a balanced budget is not the be-all and end-all of good governance -- that's one of those panaceas we occasionally fall for -- and running a deficit at the federal level is not the end of the world or necessarily even bad policy. Tax cuts can stimulate the economy. But note the long, circuitous thinking about giving tax cuts to the rich: If the rich have more money, they will invest it -- and that investment will allow companies to expand, and then they will hire more workers, and that will end the recession. Whereas, if you give tax cuts to the middle and working classes, they go out and spend the money because the baby needs new shoes. Presto, demand is up, factories back in action, end of recession.

There's no guarantee that rich people will do anything economically productive with more money. Their major strategy seems to be stashing it in offshore banks so they don't have to pay any taxes. As Leona Helmsley so famously remarked, taxes are for "little people." The dirty little secret about taxes in this country is that rich people and corporations mostly don't pay them now -- they have a whole system of shelters and offshore deals. We don't need to raise taxes in this country, we need to collect them.

The centerpiece of the Bush tax cuts is eliminating dividend taxes, effective immediately, on the grounds that the dividends are "taxed twice" -- by the corporate income tax and then the dividend tax. This one has absolutely nothing to do with economic stimulus, it's a pure give-away to the rich.

One reason dividends should be taxed is because the people who get them don't work for the money. In the old days, people who lived off their investments were known as "coupon clippers" and generally despised as non-working parasites. Granted, it takes some smarts to do well enough in the stock market to live high (and somebody, like your granddaddy, had to make the money in the first place), but the fact is most investors don't spend their lives poring over company prospectuses -- they pay someone else to do it. They're making money off other people's labor. Why shouldn't they pay taxes on it?

The final reason it's dumb to cut taxes for the rich is the problem of social justice. We're already in trouble because the income gap between the rich and the rest of us keeps getting worse and worse. The rich buy their way out of our public institutions -- schools, hospitals, parks -- and then contribute money to politicians who let the public infrastructure go to hell. It doesn't work.

© 2003 Creators Syndicate

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