Let's Write Off The Middle Class Tax Cut
Washington is often accused of being isolated from the real world. But the tax debate taking place on the Hill takes inside-the-Beltway insularity to new lows.
The centerpiece of legislation now moving through Congress is a "middle-class tax cut," a notion that is dear to the House and Senate Democratic leaderships and has acquired a life of its own on Capitol Hill. The idea is to provide a windfall of $300 a year or so to most taxpaying families, depending on which version you're talking about.
The motivation for this tax cut is political, not economic. Were it aimed at bolstering the economy, the tax bill's centerpiece would be designed to increase U.S. productivity by encouraging spending on new plant and machinery. Interestingly, opinion polls show that the proposed beneficiaries are indifferent a tax cut. Economists of all stripes agree it would do little to stimulate growth. Even many politicians are losing interest in middle-class tax relief. The Democrats holding down the left and right flanks of the Presidential field, Tom Harkin and Paul Tsongas, belittle it. President Bush proposed such a reduction in January but reversed his position and now threatens to veto it.
An unenthusiastic House Ways & Means Committee Chairman Dan Rostenkowski (D-Ill.) is ready to push a tax bill through the House containing a temporary $200-per-worker credit against Social Security taxes. A version of the bill to be drafted by the Senate Finance Committee will also offer a modest tax break, despite the misgivings of Chairman Lloyd Bentsen. In theory, the Democratic plans would pay for temporary middle-class tax cuts through tax increases on the rich, which President Bush threatens to veto.
The fact is that Rostenkowski and Bentsen are going along with an idea that they, and many others, know is lousy. The federal government is running a $400 billion deficit, more than $1,600 a year for every person in the U.S. Governments at all levels lack the money to meet pressing needs, from health care to highway repair, from education to prisons. It's time to forget the middle-class tax cut. It will do nothing to improve productivity, but it will deepen the deficit. Congress, do the right thing for a change.