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News :: Politics
Tax Reform Tango: More Shrink, Shift and Shaft
08 Nov 2005
President Bush’s Tax Advisory panel completed almost two years of work earlier this month and presented their recommendations. The results are…interesting.

Though politicians talk a lot about “tax reform,” substantial restructuring of the tax system happens just once in a generation, like the sighting of a rare comet.

Genuine tax reform, like the overhaul passed in 1986, requires a unique constellation of political and economic stars to line up, including Presidential leadership. In 1986, Congress cut a remarkable deal after six years of public pressure to close corporate loopholes, broaden the tax base, and reduce tax rates.
It is hard to image the current Bush Administration and its right-wing allies in Congress following the recommendations of this report. For five years, they have advanced a simple program: reduce taxes for the rich. Tax cuts for their donor patrons are reasonable in any season or economic circumstance, according to these “starve-the-government-beast” activists whose political program is best characterized as “shrink, shift and shaft.”

They rhetorically claim they want smaller government, but in reality they only shrink the functions of government that help people and ensure equality of opportunity. Meanwhile, they enlarge the Big Brother state and ensure a steady flow of corporate welfare subsidies and payments to Halliburton and other military contractors (not to be confused with defense).

They want to shift the duty of paying for government off of progressive taxes and onto regressive taxes, off the feds and onto the states, off big corporations and onto small business, and insidiously, off of today’s taxpayers and onto the next generation. This explains their obsession with steadily reducing taxes on the wealthy in the form of tax cuts on capital gains, dividends, inherited estates, and high incomes.

This shafts the majority of taxpayers who get tax shifts, not tax cuts – and leads to budget cuts that worsen the quality of their lives.

We expected the President’s Tax Panel to recommend more shifts and shafts – and this was largely true. But it could have been much worse as well-funded anti-tax groups have been gunning for decades to replace the progressive income tax with a national consumption or flat tax. But the panel carefully studied these options, rejected them, and reaffirmed the centrality of the progressive income tax, dealing a tremendous blow to tax shifters.

The panel made a number of recommendations for tax simplification that should rightfully win immediate passage. And they even courageously propose reform of the “mansion subsidy” provided by the Home Mortgage Interest Deduction. More than half of last year’s $90 billion in homeowner subsidies went to the 11.8 percent of taxpayers with incomes over $100,000.

How did this happen? One charge to the panel was that their overall proposal be “revenue neutral,” meaning that it could neither raise nor lose more money than the current system. This is a constraint that the President and Congress abandoned starting 2001 when the first round of Bush tax cuts blew a hole in budget. Making the 2001 and 2003 tax cuts permanent would add over $1.8 trillion to the deficit by 2015.

There are significant problems, however, as many of the Panel’s recommendations will worsen America’s already festering economic divide. First, they assume that the 2001 and 2003 Bush tax cuts become permanent –which institutionalizes massive windfall tax cuts for the rich. The tax panel would also increase the “worker penalty” by worsening the unequal treatment of income from work versus income from wealth. A middle-income worker will pay a 25 or 30 percent tax rate on their earned income – while a trust fund baby will only pay 15 percent or less on unearned income from their investment dividends and capital gains.

It is unthinkable that Congress and a weakened President would expend a lot of political capital on a tax program that doesn’t further their “shrink, shift and shaft” agenda. Even with its regressive features, there is too much common sense underlying the Panel’s recommendations to stir the bile of the extreme right-wingers.

The Panel has done their job. They’ve started the discussion and framed the key issues. It is up the rest of the country to press our elected officials to simplify and increase the fairness of our tax system. It’s a once in a generation opportunity.

[Anisha Desai is Program Director and Chuck Collins is Senior Fellow at United for a Fair Economy. Collins is co author of the new book Economic Apartheid in America.]
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