Tax Cut Continues "Class Warfare" 

by Mark Weisbrot

Dissident Voice

May 27, 2003


At a recent staging of one of President Bush's speeches, White House aides asked members of the audience to take off their ties. These people would appear as background for the President's attempts to persuade the public that his latest round of tax cuts would primarily benefit ordinary people, and they needed to look the part.


Backstage is another reality. One third of American taxpayers will get nothing from this tax cut, and more than half will get less than $100 for the year. Nor will the tax cuts provide much of a stimulus to the economy, which could really use one right now.


But this legislation was not designed to jump- start the economy, nor to help distressed families. The purpose is to rewrite the tax code so as to shift even more of the nation's income to the richest taxpayers.


This is easy to see: if economic stimulus were the goal, you would want to increase spending in the economy. That means now, not two or three or ten years from now.


So there is no need to rewrite the tax code, and create future deficits when the economy doesn't need them. A much more effective stimulus would be for the federal government to help the states. State and local governments are cutting back health care spending, laying off employees, even shortening the school year in a tragic attempt to balance their budgets. The shortfall is expected to exceed $100 billion over the next year.


The Senate added to the tax bill some $10 billion of aid to the states for each of the next two years, but that is not nearly enough to stem the bleeding. The administration had other priorities: getting rid of the tax that stockholders pay on dividends.

"If you're a teacher, you own equities," said President Bush. "If you're a policemen, you own equities." Maybe so, but the vast majority of people that hold stock-- including teachers and policemen -- do so in retirement accounts. So they will not benefit from the proposed dividend tax cut, since they will still have to pay taxes on their accumulated dividend income when they withdraw their money for retirement.


The dividend tax cut will therefore go overwhelmingly to upper-income households. Not surprisingly, the whole tax package is skewed toward the rich: between 19 and 23 percent of the money will go to the four-tenths of one percent of taxpayers who make more than $500,000 a year.


No fantasy appears too wild to be included in the marketing scheme. When asked about how the tax cut would affect the Federal budget deficit, Treasury Secretary John W. Snow replied "Well, it's actually going to be lower." But it's hard to find an economist even among Republicans -- who believes this "Voodoo Economics," as President Bush's father aptly named it.


The Bush team cries "class warfare" when anyone questions why the well off and the super-rich need the tax code revised yet again in their favor. But what has been going on for the past three decades? From 1973-2001 the wages of a typical worker grew by about 7 percent -- almost nothing, as compared to the nearly 80 percent increase during the first half of the post-World-War II era.


In other words, the gains from economic growth have all been going to the upper half -- and mostly to the upper 10 or 20 percent. A continual, one-sided "class warfare" has plagued this country for the past 30 years. This latest tax cut is just one more battle in that war, but it certainly won't be the last.


Mark Weisbrot is Co-Director of the Center for Economic and Policy Research, a nonpartisan think-tank in the nation's capital. Readers may write him at CEPR, 1621 Connecticut Ave NW, Suite 500, Washington, DC 20009-1052 and e-mail him at Weisbrot@cepr.net




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