Major Garret: Bush Tax Cuts

Major Garret

February 5, 2001
Web posted at: 4:28 p.m. EST

Q: Opponents have charged that Mr. Bush's tax cut will help primarily the wealthiest 1 percent of Americans. How substantial are the proposed cuts?

Garrett: From the White House perspective, everyone will benefit from a tax cut, and everyone who pays income taxes will receive a tax cut under the Bush plan.

To the question of progressivity, a fancy word for making sure the wealthy pay a larger share of taxes than the poor, this is something that's been a part of the tax code for generations. The White House says that under its tax cut, the tax revenue will be smaller than the current tax revenue pie. In that smaller pie, the slice paid by wealthy taxpayers will be larger than the slice they currently provide.

What the White House also likes to point out is that Americans who earn more than $100,000 of taxable income represent 8 percent of the population, but pay 62 percent of all income taxes. From their perspective, if you’re going to cut the taxes of the wealthy, they are going to gain because they pay most of the income taxes in the first place.

The White House also likes to point to the plan’s significant changes in the tax brackets for low and middle-income wage earners. For example, the Bush plan would reduce the current 15 percent tax to 10 percent. Who pays that rate? Any married couple that earns more than $43,000 per year or any single income tax filer who earns more than $25,750.

Generally speaking, almost half of all American income tax payers fall into those two categories. The White House says this means that almost half the taxpayers in the county would be getting a tax cut of one-third. The White House believes that if you cut everyone’s taxes you are not separating people based on their income or their success, and the president believes that’s fairer and simpler. Many Democrats would agree that it’s simpler, but are not yet persuaded that it’s fairer.

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Q: What type of support and opposition does this plan have in Congress? Are there discussions about how some in Congress might amend the plan?

Garrett: Support among Republicans is universal. The White House had feared that it might encounter resistance from moderate to liberal Republicans afraid of cutting taxes for the wealthiest Americans, but two things have completely eliminated that anxiety: 1) The surplus projections have increased in recent weeks by $1 trillion. That means there’s more money for Washington to devote to tax cuts. 2) Federal Reserve Chairman Alan Greenspan’s endorsement of tax cuts as a means of stimulating economic growth and preventing Washington from spending too much money on government programs. All Republicans are on board, and that’s enough to get any bill through the House because Republicans hold a small majority there. But the White House also expects a good number of Democrats to support its plan as well. For many of same reasons -- surpluses higher and Greenspan says it’s OK.

As for Senate, the White House has already captured one Democratic ally, Zell Miller of Georgia, who bucked his party leadership and co-sponsored a version of the Bush tax cut in the Senate with legendary Republican tax cutter Phil Graham of Texas. (Historical footnote: the last time there was an across-the-board tax cut in Washington was 1981. Phil Graham was then a member of House and was a Democrat and co-sponsored that tax cut. So it appears that the two times in modern American history when Congress will endorse an across-the-board tax cut will be with Phil Graham’s name on both.)

Where does this put the Democrats? In a very difficult position politically. In matter of months, their tax cut appetite has grown. When Clinton was still president, their appetite for tax cuts was about $300 billion. After the election and signs of economic slowdown more pronounced, their appetite grew to about $500 billion. Then, as economic news grew worse still, number grew to about $700 billion. Now, with Greenspan’s endorsement of the principal of tax cuts, this number has grown to about $900 billion. The trajectory is clear and is a reflection of political attitudes, not only across country, but within Washington, about how much of a tax cut Washington can afford and what kind of tax cut the economy may need. If numbers continue to grow, the Democrats are going to find themselves being pulled more toward the president ‘s position and may, in the end, end up much closer that $1.6 trillion number than they ever imagined during the campaign.

Q: A tax cut would bring in less revenue for the federal government. Does this mean Congress will cut spending, and if so, where would the cuts occur?

Garrett: Interesting question. It will go to the heart of how Congress deals with the fine print of the tax bill. I predict that very soon we will see the debate about the numbers give way to a debate about the timing and speed with which taxes are cut. It is becoming increasingly clear to the Bush White House that it’s going to get something very close to that $1.6 trillion tax cut.

The real question is whether Congress will build in some safeguards to make sure that declining tax revenues don’t mean a return to deficit spending. Currently, some influential members of Congress want to make sure that some of the tax cuts are phased in gradually to build in just these kinds of safeguards. The choice that Congress is likely to make is one that makes sure that tax cuts, while very popular, don’t constrain its to spend money on even more popular government programs.

Q: What is the timeline for the tax cut plan which the president is proposing this week?

Garrett: The President will send his plan to the House on Thursday where it will go the Ways and Means Committee, where all tax bills originate. The committee will aside the proposal temporarily because they want to see the president’s budget outline and how the tax cut fits into the overall budget. That budget outline will be sent to Congress sometime in the next two to three weeks. Sometime in March, the House is expected to vote on the Bush tax cut proposal. The Senate will take up the tax measure following its deliberations on the overall Bush budget. The current thinking is that the Senate could have a vote sometime in May. Because the tax bills will be written differently by both chambers, a joint House-Senate conference committee will need to reconcile the two versions and create one coherent package. That could take almost the whole month of June. The White House hopes to see a vote on the completed tax package in late June or sometime in July.

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