With the blessing of President George W. Bush, Congress passed a $330 billion tax cut bill that bestows most of its benefits on the wealthiest tax payers and provides working families with only a modest, and in some cases temporary, tax reduction. The 231–200 2 a.m. House vote May 23 was followed by a 51-50 Senate vote, with Vice President Dick Cheney casting the tiebreaking vote.
Although the final tax cut is smaller than the $726 billion tax-slashing scheme Bush proposed earlier this year that included complete elimination of the taxes on corporate dividends, “This is no victory for people who work every day, because eventually this tax giveaway to the wealthy will have to be paid for,” says Rep. Charles Rangel (D-N.Y.).
The legislation “is a breathtaking rejection of America’s priorities and shameful embrace of tax-accounting gimmicks and giveaways to the very wealthy….To pay for the tax cuts, Congress had to approve budget cuts to health care, education and homeland security and borrow from Medicare and Social Security. For months, the public has urged Congress to strengthen the future of these priorities instead of committing needed resources to tax cuts for the rich,” said AFL-CIO President John Sweeney.
Bush, who called the $350 billion Senate bill ineffective and “itty bitty,” praised this $330 billion final version and claimed victory in the tax fight. In fact, the overall cost of the Bush scheme is more like $800 billion because of budget gimmicks like artificial expiration dates of almost all its provisions, according to the Center on Budget and Policy Priorities.
The average tax cut for the richest 1 percent over the next four years will total $103,899, while the average tax cut for the bottom 60 percent of taxpayers will total $385 over the next four years, according to Citizens for Tax Justice. Low-income taxpayers—the bottom 20 percent—will receive a $15 tax cut the first year, a sum that will decrease to $1 by the fourth year of the tax scheme. Overall, the House-passed version scales back sharply the already modest middle-income tax cuts included in earlier bills by phasing out those provisions in two years.
Two of the nation’s richest men, billionaire investors Warren Buffett and George Soros, have spoken out against the tax cuts, saying they will not help the U.S. economy—as Bush has said in selling the tax plan. Soros said in an interview with the CNBC that the dividend tax plan was “basically using the recession to redistribute income to the wealthy.”
Along with accelerating the reduction in the top four tax rates that were enacted in Bush’s 2001 $1.3 trillion dollar “millionaire” tax cut and were not to due go into full effect until 2006, the bill also cuts taxes on capital gains and corporate dividends—taxes paid almost exclusively by wealthier taxpayers. At the same time the Bush administration is backing massive tax breaks for the rich, it also wants to require working poor families to submit extensive new documentation to prove their eligibility for the Earned Income Tax Credit (EITC).
For married couples, the so-called marriage penalty, where a two-income couple pays more in taxes than they would if single and filing separately, is reduced but only until 2005. The lower 10 percent tax bracket is expanded under the bill, but that too is effective only to 2005. Many families will receive $400 per child this year.
In early May, the House passed a $550 billion tax cut, and on May 15 the Senate approved a $350 billion plan. The tax cut portion of the final bill also includes $20 billion in aid to the fiscally strapped states—a provision Bush and House Republican leaders originally opposed.
More
Read the Citizens for Tax Justice analysis of the millionaire tax cut.
See how the tax scheme uses gimmicks.
Find out more about Bush’s failed economic policies.
Read AFL-CIO President John Sweeney’s full statement.
