Return to supply side

The moderating effect of the Senate Finance Committee on President Bush’s tax cut whittled the break for the nation’s 400 top earners (who average $110 million annually each) from $1 million a year in the House to an average of $622,000 in the Senate version marked up this week. Instead of providing nearly 80 percent of the break to the top 20 percent of earners, the Senate version directs a little more than 70 percent their way. If the tax cut is about economic stimulus – and it has been sold as that among many other reasons – then it is a resounding attempt to validate the trickle-down theory of the early 1980s.

Overall, the Senate proposal is a little smaller and a little more generous to those with middle or lower incomes, but it is not different in kind from the one first put forth by the White House. One exception from the Finance Committee moderates, including Sen. Olympia Snowe: a partial, refundable child credit for families earning between $10,000 and $22,000. Called the Relief Act of 2001, the proposal keeps the doubling of the credit but allows more families – families that would be helped most – to receive the benefit of it.

Because working parents who earn in this bracket do not pay much if anything in income tax, they would largely miss the expanded break that better-off families would receive. But Sen. Snowe accurately observed that these families pay “state and local taxes, payroll taxes, gas taxes, phone taxes, sales taxes, property taxes, federal excise taxes and the list goes on and on.” Under the Senate plan, they would get a few hundred dollars in credit for each child, a small but important boost for those at the edge of debt.

The child credit, like many of the tax breaks, back-loaded, meaning that they do not take full effect until several years from now, which unfortunately allows Congress to mask the true cost of the tax cut. The 10-year estimate for the Senate tax break is $1.3 trillion; in part because of back-loading, the cut for the following 10 years is estimated at more than $4 trillion. And in insisting that the tax cut is affordable, members of Congress have excluded proposals like funding for medical research and development and missile defense, and they have assumed that business tax breaks, now being assembled behind an increase in the minimum wage, will not arise.

Maine Sens. Snowe and Susan Collins were early proponents of a “trigger” to check spending and release the cuts only if adequate funding was available. No one talks about the trigger anymore, and there is likely insufficient interest in Congress to see it become law. This is not a surprise – this tax cut is not about restraint. It is an assertion that taxpayers, particularly the wealthy, who pay most of the taxes, deserve their money back more than the government needs to carry out certain programs. It is further a promise that the bills will be taken care of a decade from now. The question for Congress is, will the people who benefit most now be eager to help when those bills come due?