Krugman on Bush tax cut mendacity

Michael Pollak mpollak at panix.com
Sun Feb 11 02:32:49 PST 2001


February 11, 2001

Slicing the Salami

By PAUL KRUGMAN

T he selling of George W. Bush's tax cut relies heavily on salami

tactics slicing away opposition a bit at a time. To understand how

fundamentally misleading that sales pitch is, we must look at the

whole salami.

Basically, there are three federal taxes on individuals. The

payroll tax, which is levied at a flat rate of 15.3 percent of

income up to a maximum of almost $70,000, is the main tax paid by

about four out of five families. The income tax is less than 10

percent of income for most families, but it rises to around 30

percent of the income of million-dollar earners. And the

inheritance tax, which applies only to estates of more than

$675,000 (twice that for couples), is a tax on only the very well

off: a mere 2 percent of estates pay any tax, and most of the tax

is paid by a few thousand multimillion-dollar estates each year.

Now for the salami tactics.

Conservatives who decry the burden of taxes always include the

payroll tax in their calculations. And when arguing for tax cuts,

the administration starts with numbers that include the whole

salami. Again and again we hear about that projected surplus of

$5.6 trillion. You shouldn't believe that projection, but for what

it's worth more than half of it (the more credible half) comes from

Social Security and Medicare programs financed by payroll taxes.

When it comes to tax cuts, however, Mr. Bush's people ignore the

payroll tax that is, they propose no cut in the tax that is most of

what most families pay, while demanding a large cut in the income

tax, which falls mainly on the affluent. And they want to eliminate

the inheritance tax, which is overwhelmingly a tax on the downright

wealthy.

By proposing to eliminate a tax that falls entirely on the rich, to

cut a tax that falls mainly on the well off, but to ignore the main

tax paid by most people, the administration has made a deliberate

decision to tilt tax relief strongly toward the top of the scale.

Families earning $50,000 per year would on average get a tax break

of about $800 annually; families earning $1 million would get about

$50,000. Yes, well-off families currently pay a higher share of

their income in taxes but not that much higher. And no, it's not

"class warfare" to point out that the tax cut disproportionately

benefits the very, very affluent.

Now you could try to justify tax cuts tilted toward the top by

claiming that a rising tide lifts all boats, and that cutting taxes

on the rich will make the economy grow faster. But that is not the

case that the administration is making perhaps because given the

extraordinary boom of the Clinton years, it's hard to claim that

excessive taxes have been a drag on economic growth.

Instead, the administration pretends that it is offering broad tax

relief for working families. Last week Treasury Secretary Paul

O'Neill declared that the plan "would focus on helping those people

who are close to the low-income and middle-income brackets," adding

that "it would affect every American that currently pays taxes."

This statement isn't technically a lie: "close to" need not

actually mean "in," and "affect" need not mean that a family's

taxes are actually reduced. But one has to say that Mr. O'Neill,

whom the press has portrayed as a straight talker, is learning his

new trade very quickly.

The pretense that this is a populist tax cut is aided by careful

slicing of that salami. The Bush people love to point out that

families in the lower brackets will see a greater proportional

reduction in their income taxes than those in the top bracket; they

hope you won't notice that the main burden on such families is not

the income tax but the payroll tax, which will not be cut, and that

the children of the wealthy will receive large additional tax

relief from the elimination of the inheritance tax.

Those staged events with "tax families" slice the salami even

thinner, carefully avoiding any reference to the major

beneficiaries. The only high-income taxpayer, and the only likely

inheritor of a taxable estate, ever mentioned at these events is

Mr. Bush himself.

Otto von Bismarck is supposed to have declared that "people will

sleep better not knowing how their sausage and politics are made."

Mr. Bush no doubt agrees; he hopes that the American people won't

look too closely either at the composition of the tax salami or at

how he proposes to slice it.

Copyright 2001 The New York Times Company



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