The lasting legacy of the Bush administration might not have to do with the war on Iraq or any foreign affairs. More than likely, the domestic state of the economy will be remembered and the determining factor in a reelection bid.
According to a CBS News/New York Times poll, the president’s current approval rating currently stands at 51%, down from 73% during the first weeks of the war during April. Now that people have shifted their attention away from the Middle East, most only want to see an economic recovery. However, with interest rates too low, large budget deficits, and high jobless claims, President Bush has yet to achieve any progress.
The president has only some influence over the economy, so his plans must have the intended consequences. Unfortunately strained foreign relations has a depressing effect on spending and investing because of the fear and retaliation that seems evident. Domestically the president had the opportunity to stimulate American businesses through an innovative tax plan, but seems to have failed.
As the nation loses 2 million jobs in two years (compared with the addition of 5 million jobs in 1999 and 2000), and the stock market indices remain flat, the tax cuts are helping to make the wealthy, even wealthier. The problem is President Bush’s belief against progressive taxation, “These are the basic ideas that guide my tax policy: lower income taxes for all, with the greatest help for those most in need. Everyone who pays income taxes benefits.” Sadly, there is little truth to these words, unless the rich are considered to be those in need.
According to a study conducted by Deloitte & Touche, the average tax break for a single person earning $41,000 is $211; whereas a single earning $170,000 averages a $2,743 tax break. Shockingly, the tax break for the poorer individual is only .5% relief compared to 1.6% relief for the richer individual.
President Bush has made it clear that his tax bills are done in fairness, “My tax cut plan is not just about productivity, it is about people. Economics is more than narrow interests or organized envy. A tax plan must apply market principles to the public interest. And my plan sets out to make life better for average men, women and children.” The problem with such a laudable statement is that it’s a proven lie.
Other than tax studies, the bill’s inequity is most evident when applied to the Federal Estate Tax. Before the Bush tax plan was implemented the estate tax stood at 55%, but it will be phased down to 45% by 2009. And in 2010 the tax will completely disappear.
To explain the tax further, it is important to note that at the time of death, a person’s real estate, savings, and other accumulated wealth are valued. When the tax bill was first passed May 23, 2001, the first one million dollars were exempt from this death tax. Therefore the 55% tax was applied to wealth exceeding $1 million dollars. By 2009, that exemption will climb to $3.5 million.
This doesn’t even affect most Americans. First, the death tax is not applied on a spouse. Second, even with a house value at $500,000, the death tax exemption still protects savings and investments valued up to another $500,000. Therefore the death tax rarely matters, except for the very rich.
Worse, the death tax does not penalize the person who earned their extreme wealth. Rather the tax penalizes rich children, those who did nothing to earn the money, and only receive it through an inheritance.
With this tax plan, the impoverished families earning minimum wage still must pay income tax, yet the children of the upper class will be untaxed on their inherited money during 2010.
The government is losing out on free money. This is money that can be used to build schools, roads, and finance reconstruction in Iraq. This is money that can support the inner-cities, feed the soup kitchens, and be injected into a failing economy.
In 2003, Forbes valued the top 400 wealthiest people to total a net worth of about $955 billion. Therefore if we include the $1 million exemption for each of those 400 people, it wouldn’t even lower their total net worth to $954 billion. Now if we assume that they all die in 2010 or at anytime after that when there might possibly be no federal estate tax, it means that at 55% the federal government loses $524.7 billion dollars. That figure speaks for itself.
Bill Gates is worth $46 billion. Therefore his three children would each inherit $6.9 dollars within the old taxation system. In the new system, if their father dies in 2010, they would receive over $15 billion. It is safe to assume that his children will hardly notice the billions of dollars in taxes; they will still be the richest teenagers in the world and it won’t be due to any of their own hard work.
One justification for this form of reduction in taxes is to protect the small business owner and farmers, in which the white house’s official website claims, “Eliminating the death tax will allow family farms and businesses to be passed from one generation to the next without having to break up or sell the assets to pay a punitive tax to the federal government.”
Like any legislative bill, the death tax could have been eliminated for certain people and businesses and not for others. Farmers already enjoy plenty of income tax breaks through special tax codes. Similarly, the tax plan could have included special provisions for exempting farms and small business from estate taxation, as it already does spouses.
The loss of revenue from the elimination of the death tax will undoubtedly have to be found elsewhere. Even if equally distributed, it means that the lower class will be forced into paying higher income taxes than they would have had to pay with the old system.
The high income tax must be paid on top of the traditional payroll taxes, such as Social Security and Medicare. These payroll taxes are yet another aggravating tax, that actually mirrors a regressive tax, where the poor pay a higher percentage than the rich, due to a ceiling in the taxes.
Jerry Springer, suggested eliminating the payroll tax completely for everyone on their first $20,000 of income. Unfortunately, he never pursued his run for Congress because of contractual obligations that he felt would have hindered his ability to help his constituency. Had he pursued a second run at politics and been able to implement his own tax plan, the economy would have been stimulated with equality. Everyone would have been offered the same tax break on their initial income. Except, the rich would have shouldered slightly more of the burden because the ceiling would have been eliminated.
It is commonsense to not tax the initial earnings of all people, because everyone uses those dollars for basic human needs. The first $20,000 for the rich and for the impoverished alike must be used to purchase food, clothing, and housing.
Unfortunately, President Bush places more importance on securing the future of wealthy children than the basic needs of all Americans. Eventually the death tax will return, courtesy of a glitch in the bill. Unless further action is taken, in 2011 there will again be a federal estate tax. By then, Americans should hope that Congress will have the defiance and courage not to revive the death tax. Instead, the citizens of this country should be hoping for massive reform, including universal healthcare, an end to destructive foreign relationships, and possibly a new policy on taxation that includes a small exemption from the payroll tax for all.
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Copyright 2004, Kevin Semanick