|By A.D. Freudenheim||
6 May 2001
With recent news of a tentative agreement in Congress on President Bush's tax plan - which would return $1.35 trillion dollars over eleven years back into the proverbial pockets of the American people - I am prompted to think about the nature of taxes in a very personal way: How much money are we talking about, and what is the value of this money to my household?
Under Bush's proposed tax plan, my "household" would receive an overall tax break amounting to roughly 1.7% off the current rate of 26.9%. In dollars, this is somewhere in the neighborhood of $1,500, by the time the full cuts take effect (eleven years from now), with likely savings of $500 in the first year of the plan. (It is worth noting, however, that the numbers do not take into account that the cost of living increases some 2.6% a year; in eleven years, that $1,500 will not be as valuable as it would be now.)
President Bush claims that, as the economy slows, the tax cut will help stimulate additional spending and investment. Perhaps; the savings I see next year might enable my household to invest in the stock market by an additional $500. But let's be realistic: at an average savings of $41.66 per month, this money would likely disappear on things no more useful than pizza and a movie. Would that entire $1,500 be invested if available? Perhaps, and that might be the prudent thing to do. But again, this amounts to savings of only $125 per month, and with inflation in eleven years that $125 could very well have the spending power of the current $41. We're back to pizza and a movie, with the addition of popcorn and a soda.
The potential value of that money to my individual household is very different than its collective value to the government - and thus to the communities who benefit from government spending. Because there are an estimated 18 million citizens who share my household's tax bracket, the U.S. government would get a significantly greater benefit out of this money: if only half of them refused to take their tax cut, it would add an additional $4,500,000,000 to the U.S. treasury (at $500 per taxpayer). What does $4.5 billion do? It could: enable an increase in spending on education by 10% of that department's $44 billion allocation for the coming fiscal year; add 50% more money to the pool of funds available for Pell Grants, the primary system providing financial aid to college students; provide 15% more money to the Department of Housing and Urban Development, enabling more programs to help the homeless or provide new mortgage benefits to lower-income families; or send an extra 8% to the Department of Health and Human Services, further reducing the number of children without medical insurance or adding to research on new medicines. Even in what Republicans happily call the "wasteful" atmosphere of Washington, DC, and taken home as "pork" by any member of Congress, this $4.5 billion would likely be applied to some pet project bringing jobs to their home state - and that's the worst-case scenario.
Instead, it is an unfortunate accident of the condition of the American middle class that a savings of 1.7% does not have tremendous value to individuals. The Republicans supporting the President's tax cut acknowledge this point - few of them would be satisfied with a 1.7% rate of return on their money from any type of investment. But I cannot speak to what the wealthy might do with their tax cuts - the estimated 5% that those earning more than $319,000 per year would save. Nor can I say what the bottom 80% might do with their money, though their average tax savings of roughly 1.17% will probably not amount to more than a few hundred dollars after eleven years (at best). If my fellow tax-bracketers all spent their money on pizza, too? Sure, we could have a tremendous impact, benefiting everyone from those in agriculture to the pizza delivery person. Yet there is no guarantee that anyone, in any tax bracket, will do anything at all with their additional income. The government, however, will certainly spend the money.
Ultimately, I am hard pressed to believe that on the scale proposed, 1.7% amounts to anything more than an accounting error. It is too little money to the individual and too much money for the government. It seems to me that when communities thrive they do so because they have achieved a balance between the strength and needs of the individual and the strength and needs of the community of individuals. This type of balance has played a key role in the success of the United States economically and socially, despite all of the problems - the poverty, illness, homelessness, and desperation - that many Americans still face.
What President Bush has proposed, and what Congress will likely enact, is a tax cut that is predicated on the idea that the value of this money to me, the taxpayer, is greater than the value of that money to the government. It presupposes that spending and savings and investments will all increase so significantly that the benefits for the country (and the economy) as a whole are much greater than whatever the government could do by refocusing its own spending efforts. And it assumes that whatever negative effects government budget cuts might have on communities can be balanced out by greater charitable contributions from individuals. But based on the $500 to $1,500 that Mr. Bush is proposing to return to me, I simply do not believe this to be the case.
Copyright 2001, by A.D. Freudenheim.
May not be used in whole or part without written permission.
However, you may link to this page as desired! Contact A.
D. Freudenheim for further information.
This page is part of: The Truth As I See It.