The political success of the Bush Administration's
tax cut strategy will depend on how much they can
deceive people as to who gets what. Most Americans, no
matter how much they hate paying taxes, do not believe
that the richest people should be first in line when it
comes to getting tax relief.
The estate tax (dubbed the "death tax" by
Republicans in order to make it sound sinister) is
something that 98 percent of Americans will never have
to worry about. That's because they do not leave enough
assets to be taxed when they die. A married couple can
already exempt $1.35 million, and this rises to $2 million
by 2006. And anything that is left to a spouse is tax-free.
Mr. Bush has proposed to abolish the estate tax.
The largest beneficiaries of this generosity would be
about 2400 estates that pay half of the tax. The lucky
heirs would save an average of about $3.4 million each.
Call it a "Head Start" program for the rich. But the
Bush Administration has a different spin: it's all a valiant
effort to spare family-owned businesses and farms from
being broken up on account of the "death tax."
Reality check: 94 percent of farms, of any size,
are not subject to estate taxes. Small farms and businesses
have higher exemptions and other special treatments, and
there are very few estates that are made up primarily of
these assets. In 1998, there were only 776 taxable estates-
- less than 1.6 percent of the total-- in which the majority
of the estate consisted of family-owned business assets.
The number was even smaller for farms.
The tax-cutters have also proposed to fix the
"marriage penalty," under which some married couples
pay more income taxes than they would if they had filed
individual returns. But here, too, Mr. Bush's solution is
skewed toward upper-income households-- some of
which already benefit from a "marriage bonus," as
opposed to a penalty.
The harshest effect of the marriage penalty falls
on low-income households who qualify for the federal
Earned Income Tax Credit. We are talking couples who
earn less than $15,000 each, who can easily lose more
than $3000 a year when they get married. Mr. Bush's tax
overhaul will not get rid of this inequity.
A detailed analysis of the whole $1.6 trillion tax
cut, as done by the Citizens for Tax Justice, shows that
43% of it would wind up in the hands of the richest 1% of
taxpayers: those with an average income of $915,000
would get an average tax cut of $46,000 a year. For the
bottom 60% of taxpayers (income less than $39,000), the
average tax cut would be $227.
Of course, there is a case to be made for shifting
the tax burden-- in the other direction. And fortunately,
there is a sizeable source of tax revenue yet untapped:
financial and currency transactions. A very small tax on
the buying and selling of stocks, bonds and currency
would barely be noticed by long-term investors, but
would discourage speculative trading. Such a tax would
not only raise a good deal of revenue, but would help get
rid of some of the waste and instability in our bloated
In case the projected budget surpluses turn out to
be smaller than predicted, a "speculation tax" would
supply the necessary revenue for a tax cut to those who
most need and deserve it: the majority of Americans, who
have not shared in the economic growth of the last
Mark Weisbrot is Co-director of the Center for
Economic and Policy Research in Washington and Co-
author, With Dean Baker, of "Social Security: the Phony
Crisis" (University of Chicago, 2000)