TAX WINNERS, LOSERS

The face-off in Congress over budget resolutions for fiscal year 2009 delineated clear differences between Democrats and Republicans on the issue of who pays how much for government services. With the Senate and House votes, Democrats have successfully taken a splitting ax to the Bush tax cuts, dividing the breaks given to the most wealthy Americans from those given to the middle class, and putting more money toward social programs, at least on paper.

Democrats support retaining lower tax rates for middle income earners, while reversing the deductions that the top 1 percent of earners received with the Bush tax cuts. Republicans want the tax breaks to remain in place for all, as they were conceived in the early years of the Bush administration.

Debate on tax policy always comes down to the concept of fairness. When President Bush took office, the federal government enjoyed a huge revenue surplus. The new president argued this meant Americans had been overtaxed and should see some relief. The counterargument was that the economy was booming and individuals and businesses were earning more than expected, and so paid more taxes on what was, essentially, new, unanticipated income. When the economy began to falter in 2001, the president began asserting that his tax cuts were needed to spur economic growth.

By framing the debate around the term “tax cuts,” the Bush administration held the upper hand with Democrats for years, even in the face of a growing federal deficit. Democrats countered that it wasn’t so much a tax cut as a change in tax policy, which was more accurately understood as a benefit bestowed, mostly, on the wealthiest Americans. That tax policy, they argue, has created massive debt that will be paid off by future generations.

The Bush tax code changes came at the end of a long period of economic expansion; had Mr. Bush taken office a year later, the cuts probably would not have seemed remotely prudent.

If the huge budget deficits were not building each year, Mr. Bush could make a somewhat credible case for cutting tax rates. But the deficits are building, and the federal government’s need to borrow affects credit markets, the value of the dollar, energy prices and finally, the health of the U.S. economy.

The burden of running the federal government has not gone away (and Republicans, who controlled both houses of Congress and the White House for six years, did not reduce that burden). So the question remains, who picks up what portion of the tax burden?

Those Americans who fall into the bulging part of the bell curve of earners have seen the buying power of their wages decline over the past 35 years. It is they who are harder hit by spiking energy cost, it is they who see higher health insurance co-pays, and it is they who are not getting raises or overtime pay. If the U.S. can afford lower tax rates – and that is in itself debatable – those breaks must go to the middle class.

Republicans on the campaign trail this summer and fall will have a hard time arguing to the contrary.