Saturday 3 May 2003
WASHINGTON (Reuters) - Independent Sen. Jim Jeffords said on Saturday the fervor for tax cuts has become a theology rather than an economic policy for some Republicans and warned President Bush against pushing lawmakers too hard for his $550 billion package.
The Vermont senator bolted the Republican Party two years ago in a dispute with the White House over the way Bush and his Republican allies in Congress handled their drive for the $1.35 trillion tax cut that Bush signed into law in 2001.
Jeffords is an independent but votes with Democrats, who invited him to give their weekly radio address on Saturday. He said history was repeating itself in the current debate over the tax cut package Bush says is needed to boost stock prices and create jobs.
``The president is again proposing a budget that does not adequately fund America's needs and includes new tax breaks that are likely to force disastrous cuts in urgent and national programs and create horrendous future deficits,'' Jeffords said.
``When did standing on principle, speaking your conscience and representing your constituents become unacceptable in certain Republican circles?'' he said.
FINANCING TAX CUTS WITH DEBT
Jeffords said Bush's proposed tax cut will be financed with borrowed money that the nation's children and grandchildren will eventually have to pay back. He also said the deficits threatened to explode just as the baby boom generation, born from 1946 to 1964, begins to retire and draw on Social Security and Medicare.
``This fervor for tax breaks at the expense of all else demonstrates that there are some who see tax cuts not as a policy, but as a theology,'' Jeffords said. ``Their belief that tax cuts will solve any problem is uncompromising, unyielding, and, sadly, undeterred by past experience.''
Senate Finance Committee Chairman Charles Grassley in a recent interview with CNN that Republicans were unlikely to get everything they wanted if they hope to pass the tax cut through the closely divided Senate.
``If Republicans push too hard, you have what happened to us two years ago with Senator Jeffords leaving the party,'' the Iowa Republican said. He quickly added that he did not expect that to happen.
Bush initially proposed a $726 billion 10-year tax package that would accelerate scheduled income tax cuts and eliminate taxes on stock dividends. Lawmakers have been trying to fit his proposals into a smaller $550 billion amount approved by the House of Representatives and $350 billion approved by the Senate.
Democrats oppose big new tax cuts, arguing Bush's plan will add to deficits and lead to higher interest rates, benefit the wealthy and provide little stimulus to the soft economy.
The House is expected to act on its pared-down version of the tax cut next week. The bill would reduce tax rates on both dividends and the sale of stocks and other assets. It also would accelerate income tax cuts already scheduled.
The Senate hopes to act on its version next week as well. But members of the Senate Finance Committee are struggling to reach agreement on key components including dividend taxes and aid to cash-strapped states.
House Republicans have expressed frustration with the Senate where moderates worried about rising budget deficits have refused to support a larger tax cut.
``I am tired of trying to fit the Senate,'' Speaker of the House Dennis Hastert, an Illinois Republican, told reporters earlier this week.
``We've done what the president says, we have compromised from $726 (billion) down to $550 (billion) and if the Senate can't get its work done, that's just too bad,'' he added.
House G.O.P. Tax Cuts Outdo Bush Plan in Favoring Wealthy
By David E. Rosenbaum
New York Times
Saturday 3 May 2003
WASHINGTON, May 2 - The tax-cut plan offered this week by Republican leaders in the House would be even more favorable to the wealthiest taxpayers than the larger plan proposed by President Bush, and those with incomes of less than $50,000 would have smaller tax reductions than under the Bush plan, a computer analysis showed today.
The analysis by the Tax Policy Center at the Urban Institute and the Brookings Institution found, for example, that taxpayers with incomes of more than $1 million would get an average tax cut this year of $105,636 under the plan outlined on Thursday by Representative Bill Thomas of California, the chairman of the House Ways and Means Committee. Under the Bush proposal, the average cut for these people would be $89,509.
By the same token, taxpayers with incomes between $50,000 and $75,000 would get an average tax cut this year of $734 under the the Bush plan and $712 under the Thomas plan; those with incomes between $40,000 and $50,000 would get an average cut of $482 under the Bush plan and $456 under the Thomas version. Similar disparities exist with the smaller tax cuts at lower income levels. Eighty-four percent of all taxpayers have incomes of less than $75,000.
The main difference between the two plans is that the president would eliminate the tax on most stock dividends but would not change capital gains taxes. The House plan would lower the tax on capital gains - now 18 percent or 20 percent in most cases - to 15 percent and tax income from dividends, now taxed at rates up to 38.5 percent, also at 15 percent.
Rich people, because they have more to invest, are the main beneficiaries of capital gains and dividends. But they have a larger proportion of total capital gains, which are profits from the sale of investments, than they do of dividends. So they benefit even more when the capital gains rate is reduced than they do from eliminating the tax on dividends.
Taxpayers with incomes of more than $1 million would save an average of $42,800 this year from the Thomas approach of lowering the rate on capital gains and dividends. They would save an average of $26,800 from eliminating the tax on most dividends.
The rest of the tax savings this year would come mainly from provisions that would lower tax rates across the board. Other savings would come from an increase in the credit for children and a bonus for married couples. These provisions are the same in the Bush and Thomas plans as they apply to this year's taxes.
Mr. Thomas did not comment on the study. "We haven't had time to even think about this," said his spokeswoman, Christin Tinsworth.
Mr. Thomas and other Republicans are generally contemptuous of these kinds of studies, which are called distributional analyses. Republicans are not concerned when the most affluent people in the country get the bulk of tax cuts, because they pay the bulk of the taxes. The best way to improve the economy, in the Republican view, is to give money to the people who are most likely to invest it.
Another study released today showed that if special provisions called sunsets that Mr. Thomas put in his bill to keep the cost down are factored out, the total cost in lost revenue over 10 years would reach more than $1 trillion, far greater than the $550 billion allowed under the budget Congress approved last month and the $726 billion the president proposed. This study was done by the Center on Budget and Policy Priorities, a liberal policy institute.
This study and the computer analysis of benefits at different income levels were conducted by Democratic analysts who are opposed to Republican tax-cut policies. But the findings were based on impartial data from the Internal Revenue Service, the Congressional Budget Office and the Joint Congressional Committee on Taxation.
The sunsets are provisions that put popular tax cuts in place this year but make them expire at the end of 2005 to save money under the 10-year calculations. Mr. Thomas did this with the child credit, the marriage bonus and an expansion of the 10 percent tax bracket, all of which are popular because they benefit masses of middle-income taxpayers. Another tax break that would expire after 2005 would allow increased write-offs for small businesses.
Mr. Thomas left no doubt on Thursday when he outlined his plan to reporters that he expected Congress to make these provisions permanent before they expired. Altogether, he saved about $100 billion in projected lost revenue by sunsetting, the Center on Budget and Policy Priorities calculated.
Another provision that would expire in 2005 would extend more generous depreciation write-offs for large companies for their expenses on plants and equipment.
This was originally written to encourage investment during hard times for businesses, and it is not so clear whether Congress would be eager to extend it past 2005 if the economy improved. But if it was extended for the full 10 years covered by the legislation, it would cost another $400 billion in lost revenue, bringing the total cost of the package to more than $1 trillion, the center calculated.
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