Federal tax policy isn’t sexy. But it is important.
President Bush recently said that his “tax relief for everybody” can help
counter the current economic slump in America. The unease of Mr. Dow and
Mr. Jones and millions of hourly workers is hard to miss. Our new president
has a solution: a $1.6 trillion, 10-year tax cut that would return people’s
money to them—$1,600 for the average American family—where it belongs.
It’s no secret that the top 1 percent of high income taxpayers would reap 43
percent of the savings from the president’s tax plan. However, the class
bias of his tax policy is as it should be, GOP leaders say.
"People who have substantial amounts of money are going to take any tax
break they get and reinvest in America's economy," said Treasury Secre-tary
Paul O’Neill on CBS' "The Early Show."
What Mr. O’Neill means by the American economy matters. Is he, for
instance, referring to financial speculation or industrial production?
On a related note, why would the wealthy reinvest their tax savings from
Bush’s plan in, say, the manufacturing sector of the American economy, now
bogged down by excess inventory? This backlog of unsold goods has in part
caused a rising tide of layoffs in manufacturing, site of nearly half the
job cuts in fourth-quarter 2000, a Labor De-partment report found.
Mr. O’ Neill’s claim that the president’s tax plan would spur invest-ment in
the American economy would perhaps be more persuasive if sup-ported by
evidence. For instance, where is the data that weak invest-ment is what
ails American makers of cars or computers?
Which brings us to Mr. Bush’s definition of “everybody” under his tax-cut
plan? What of the working-poor and their family members? There are
approximately 12.2 million of them who will get no tax savings at all under
the president’s proposal, according to the Center for Budget and Policy
Priorities. The “everybody” President Bush speaks about should include
those Americans suffering most from income inequality.
The annual income of the lowest paid American workers could change if they
did benefit from the president’s tax plan. This would do many things. One
is to increase their buying power. Such an outcome would, in turn, help
boost the bottom lines of businesses big and small weighed down with unsold
Common sense dictates that increased income for low-wage American workers
will improve consumer confidence. And consumption spending accounts for
two-thirds of the American economy.
As Mr. O’ Neill correctly notes, the American economy relies on the buying
power of consumers. They are the driving force behind the eco-nomic
expansion that began in first-quarter 1991 and may be coming to a close 10
Meanwhile, the nation’s economic growth hasn’t exactly been robust on Main
Street. The economic downturn in December and January has in part helped
sink some share prices on Wall Street. Just ask Fed Chairman Alan Greenspan,
who recently said that, “changes in stock market wealth have become a more
important determinant of shifts in consumer spending relative to changes in
current household income than was the case just five to seven years ago.”
Moreover, the $1,600 in tax savings for the average American household
trotted out by the Bush administration is inaccurate, notes Max Sawicky of
the Economic Policy Institute. He explains that less than 11 percent of
taxpayers would get that amount or more.
Well, one thing is clear. The smaller the annual income of a low-wage
worker, the less she can purchase. The bigger her buying power, the less
excess capacity in the American economy. Much hangs in the balance.
Seth Sandronsky lives in Sacramento, California. firstname.lastname@example.org