Bush Blunts 'Fairness Question' on Taxes
President's 'Class Warfare' Rhetoric Brings Support for Cuts Skewed to the Wealthy
By Jonathan Weisman
Washington Post Staff Writer
Tuesday, May 13, 2003; Page A06
URL:Phttp://www.washingtonpost.com/wp-dyn/articles/A47167-2003May12.html
As the fractious Senate plunges into debate this week over President Bush's proposed tax cut, Democratic opponents will emphasize its pronounced tilt to the wealthy.
Their argument -- which Democrats call the "fairness question" and the White House calls "class warfare" -- is seen by many as the sharpest and best weapon they have against Bush's drive to cut taxes by at least $550 billion over 10 years.
But even many Democrats agree that it may amount to little more than a sideshow in the Senate showdown. That is a remarkable testament to the administration's long-running efforts to neutralize a Democratic political staple: couching Bush's tax cuts as sops to the rich at the expense of the poor.
Bush took another preemptive strike yesterday during a speech in Albuquerque when he told a small-business audience, "Oh, you'll hear the talk about how this plan only helps the rich people. That's just typical Washington, D.C., political rhetoric, is what that is. That's just empty rhetoric."
But much of the rhetoric on the issue has actually been the president's -- and polls suggest it has worked.
"Democrats are just scared to be accused of class warfare," a Senate Democratic tax aide conceded yesterday.
Peter R. Orszag, a Brookings Institution economist and critic of White House tax policy, gave Bush credit for what he called "a spin job" that used selective examples of lower-income families to convince many lower- and middle-income Americans that they have a stake in the tax cut's passage. Last week, a USA Today/CNN/Gallup poll found that 52 percent of Americans now think the tax cuts are "a good idea," an increase of 10 percentage points in two weeks.
That gain is all the more remarkable because the president's original $726 billion tax cut plan -- and the smaller versions that passed the House and are under consideration in the Senate -- clearly do favor the affluent.
Under Bush's original proposal, households with $40,000 to $50,000 in taxable income would receive an average tax cut of $482 and a boost of 1.2 percent to their total after-tax income. For households earning more than $1 million, the average tax cut would be more than $89,500, with an increase in their after-tax income of 4.2 percent, according to the Urban-Brookings Tax Policy Center.
The $550 billion version that passed the House last week is even more skewed. Those same middle-income households would receive a tax cut of $452 and an income boost of 1.1 percent, while millionaires would receive a cut of $93,537, enough to increase their after-tax income by 4.4 percent. The more modest $350 billion tax cut that passed the Senate Finance Committee last week would trim the average millionaire's tax cut a bit, to $64,431. But it would also trim the middle class cut to $415.
The 10-year $1.35 trillion tax cut that passed in 2001 also gave the rich a windfall, but it left the relative income tax burden of each income group generally unchanged. That is because most of the cuts targeted income, and taxpayers at every income level received virtually the same percentage reduction. In contrast, the centerpiece of the White House and House tax plans -- sharp cuts in taxes paid on dividends and capital gains -- are aimed at investors, who tend to be very wealthy.
To be sure, some Democrats have been making the fairness case ever since Bush announced his plan in January, said Larry Stein, a former top aide to Senate Minority Leader Thomas A. Daschle (D-S.D.). Those early attacks may explain why Bush is having so much trouble passing his dividends cut proposal, he added.
"It's the dog that isn't barking because it barked in the past and doesn't need to bark anymore," Stein said.
Liberal interest groups and their labor union allies are mobilizing around the issue now. The Fair Taxes for All Coalition, an umbrella organization, has dispatched activists dressed in top hats, tuxedos and evening gowns to protest appearances by Bush and administration officials. The group has purchased a full-page ad in today's New York Times proclaiming, "Bush tax cut leaves no millionaire behind . . . just millions of children."
Robert Borosage, co-director of the Campaign for America's Future and a coalition organizer, said the fairness appeal has worked everywhere but in Congress. Support for the tax cut is tepid at best, he said, and is nonexistent where local and state governments are slashing social services, education spending and even police budgets. After all, he said, it is not supposed to be politically difficult to cut taxes.
But administration officials say they have largely succeeded in at least neutralizing the issue. Treasury Secretary John W. Snow weathered a barrage of sharp questions on the growing budget deficit and the tax cut's potential impact on the economy when he appeared on four political talk shows Sunday, but he was asked virtually nothing about the tax cut's fundamental fairness, one aide noted.
Ever since Bush announced his plan, the White House has worked on its "class warfare" arguments, administration officials say. For instance, Bush's insistence that the top income tax rate be immediately lowered from the current 38.6 percent to 35 percent would be framed not as a tax cut for top earners but for small businesses.
As for the dividend tax cut, Bush has stressed repeatedly that anyone who owns stock -- whether it be individual shares or through mutual funds or pension plans -- would benefit from a general surge in the stock market, which he says the tax cut would trigger.
"If you're a teacher, you own equities," he said yesterday. "If you're a policeman, you own equities. A lot of people in this country own equities. And, therefore, the more the plan focus -- or any plan focuses -- on helping the market, the more we're helping our average citizens realize wealth."
A new study by the consulting firm McKinsey & Company specifically cast doubt on that assertion, concluding that even Bush's full dividends tax cut plan "seems unlikely to have a significant or lasting effect on U.S. share prices" or on corporate dividend policies.
© 2003 The Washington Post Company
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