As the U.S. economy continued to slow and Wall Street stock prices plunged last week, the Bush administration unveiled its $1.6 trillion tax cut proposal with the hope of jumpstarting the economy and giving money back to “the people that pay the bills.”
The plan has already met stiff opposition from Congressional Democrats. The 10 year proposal would cut tax rates across the board, simplify the tax code by reducing today’s five brackets to four lower ones, repeal the estate tax, decrease the marriage penalty paid by most two-income couples, and double the $500 child tax credit.
Unprecedented surpluses left behind by the Clinton administration have generated a fantastic problem for politicians: how to spend it. Most Democrats insist on cutting the top rate from about 40 percent to 33 percent is unfair and fiscally irresponsible.
They contend that while tax cuts are necessary, adequate funding for education, prescription drugs, social security and reduction of the country’s $3.5 trillion national debt is nearly impossible under the president’s current plan.
Senate Minority Leader Tom Daschle has led the fight for Democrats and criticized Republicans for basing the tax cut on 10 year projected surpluses. During the Democratic weekly radio address, Daschle said, “Trying to guess what our economy will be like 10 years from now is kind of like guessing what the weather will be like in 10 years.”
But Republicans believe current economic conditions warrant such a massive tax cut. With consumer confidence numbers falling, tax relief should increase consumer demand.
At a Rose Garden press conference of Feb. 8, President Bush spoke about the need for tax relief.
“Our economy faces this challenge: investors and consumers have too little money and the U.S. Treasury is holding too much,” Bush said.
“For several months, our economic growth has been in doubt. And now, it may be in danger,” Bush warned.
Quinnipiac University Economic Professor Mark Gius believes that the effects of the tax cut on the economy will be minimal.
“Since the tax cut is spread out over 10 years, with most of it coming in five years, if a recession is coming, it will probably be here within a year, long before any effect from the tax cut may be felt,” Dr. Gius explained.
Bush spoke about the urgency of passing his tax cut most of last week, and strongly supported making the tax cut retroactive so that the tax relief would begin almost immediately, sometime at the beginning of next year.
“As with most tax cuts, this one will probably benefit the rich. They pay the most taxes, so when taxes are cut they stand the most to gain,” said Dr. Gius.
The poor will benefit least from the tax cut. Since low-income workers pay little in taxes and sometimes receive government aide through the Earned Income Tax Credit, Bush’s tax cut will be of little help.
Old campaign promises of bipartisan cooperation seem all but a distant memory as the two parties struggle to get their agendas across in the tax cut issue.