Los Angeles, CA
President Bush claims that the surplus can cover both his tax cut for the wealthy and meet the needs of America's working families. The numbers say otherwise.
The ten-year projected non-Social Security surplus is $3.1 trillion. After excluding the Medicare surplus and making sensible adjustments to account for the effects of inflation and population growth, it falls to $2 trillion. The Bush tax cut costs $1.8 trillion, and it also adds $800 billion in costs owing to higher interest payments from failing to pay down the debt and other tax adjustments. This makes for a true cost of $2.6 trillion.
The Bush plan squanders an historic opportunity to meet the needs of America's working families. It will transfer the bulk of the surplus to America's wealthiest individuals, leaving nothing for public investment in health care, housing, education, and strengthening Social Security. The budget surplus belongs to all of America's working people whose hard work and productivity made it possible.
- For $375 billion, we can provide every Medicare beneficiary with prescription drug coverage.
- For $185 billion, we can provide every American child a place in a modern, wired classroom.
- For $315 billion, we can extend Medicaid coverage to 12 million adults and children.
- And transferring part of the surplus to Social Security can ensure the soundness of the Trust Fund.
President Bush's plan is bad economic policy and morally wrong. The distribution of wealth and income in our country is more unequal than at any time since the Great Depression, and the Bush plan would widen the gap. Repealing the estate tax represents 24 percent of the total cost of his plan, and has 88 percent of the benefit going to the top 1 percent of households, while the bottom 80 percent of households receive just 1 percent of the benefit.
Repeal of the estate tax yields absolutely no economic or public policy benefit. It does nothing to inoculate the economy against recessionary pressures, and it permanently entrenches massive concentrations of inherited wealth.
Today's tax debate is taking place in the unprecedented context of a record budget surplus that is predicted to grow and a rapid economic slowdown. The AFL-CIO supports using part of the surplus to finance tax relief, but this relief must extend fairly to all.
For tax relief to provide an efficient and effective stimulus, it must flow to those who will most likely spend it. This means ensuring that low- and middle-income families receive the bulk of the tax cuts. The Bush plan targets tax relief to those who are least likely to spend it. In doing so, it fritters away the benefit of spending the surplus and reveals that the true intent of the plan has everything to do with giving a tax cut for the rich, and nothing to do with boosting our rapidly slowing economy.
There are a number of ways that we can realize fast-acting, broadly based tax relief:
(i) A "prosperity dividend" of $400 paid this year to every man, woman, and child would cost $110 billion. The Bush plan would inject only a quarter as much into the economy.
(ii) A refundable income tax credit that exempts the first $5,700 in earnings from the employee portion of the payroll tax would cost about
$45 billion annually. The refundable credit would yield an average tax cut of $427, and the benefits are much more evenly spread than the Bush plan. Those in the bottom fifth of the income distribution receive 10.5 percent of the total benefit, those in the middle fifth receive 18.9 percent, and those in the top fifth receive 29.9 percent of the benefit.
(iii) Increasing the per child tax credit to $1,000 and making it refundable costs $44 billion annually. This yields an average benefit for families with children of $1,120, and it is again much more evenly spread than the Bush plan. The bottom fifth receive 20.7 percent of the benefit, the middle fifth receive
14.7 percent of the benefit, while the top fifth receive 23.5 percent of the benefit.
The test of good fiscal policy is whether it fairly benefits all working families, funds responsible investments that meet current and future needs, and provides cost-effective stimulus that keeps the economy growing. The Bush Administration's tax cut abjectly fails all of these tests by pre-emptively allocating the entire surplus for a tax cut for the rich.
The AFL-CIO calls upon Congress to reject the Bush Administration's unwise and unfair plan. We must work together to craft a policy that provides fairly shared tax relief, effective fiscal stimulus, and invests in America.