Whose Tax Plan Will Save You More?
By Howard Gleckman
With Washington pols whipping themselves into a frenzy over taxes, it might be a good idea to step back for a moment and consider this: Most Americans are going to pay the same amount of tax whether George Bush or congressional Democrats win the tax cut debate.
Don't get me wrong. Plenty of big issues are at stake here. Will money still be available to fix Social Security and Medicare? Will tax cuts drain cash that could be used for important government programs? Or, as a conservative might put it, will tax relief finally enforce needed discipline on federal spending?
But these are long-term fiscal-policy questions. And they might affect our taxes in five years. If history is any guide, the tax laws will probably get changed by Congress three more times by then, anyway. What really matters to most of us is how much tax are we going to pay over the next year or two. And, as they'd say in Vegas, the answer to that is a push, no matter who wins. "The things they're arguing about don't have much to do with middle-income people," says Len Burman, a former top Treasury official in the Clinton Administration.
THE 97% BRACKET.
That's because nearly all of this year's debate will be focused on the very poor and the very rich. There's plenty at stake for the working poor, who would get little or nothing from Bush but would likely get a pretty generous break from the Democrats. And a huge amount of dough is on the table for the wealthy, who stand to gain big-time from Bush but would get a small fraction of the benefits from the Dems. For the rest of us, it's a wash.
Take a quick look at the issues. Bush wants to cut the top two tax brackets -- now 39.6% and 36% -- to 33%. The Democrats, who won't have an actual plan for a couple of weeks, will probably try to keep those brackets the way they are. But unless you're a couple making $166,450 or more, you don't care. And roughly 97% of us don't make that much.
It's the same with the squabble over estate taxes. If you're an heir to 98% of the people who die in this country every year, you don't have a horse in this race, either. Estates under $675,000 -- or $1.35 million for couples who do a bit of planning -- are already exempt from the tax. Only 46,000 estates paid any levies last year. Bush would repeal the tax for all estates. Democrats are expected to repeal it for estates of about $4 million or less. That's about 44,000 of them. So, who cares who wins this fight? Only the families of about 2,000 very wealthy dead people.
Bush and the Democrats are also going to fight it out over tax cuts for the poorest Americans -- especially those who pay Social Security and Medicare payroll taxes but owe little or no income taxes. Bush does cut rates for bottom-bracket taxpayers. But because you get no benefit from tax relief once your income tax bill gets down to zero, really poor people would get little or nothing. For instance, a couple making $20,000 with two kids would get only a $33 cut in the first year and just $168 when the Bush plan is fully phased in years from now. Democrats will probably make their cuts refundable, so the poor would get a check from the government if their tax liability were zero.
Depending on what the Democrats propose, perhaps 10 million to 20 million families would get a better deal under their plan than under Bush's. That's a lot of folks, but 90 million other families won't be affected at all either way. Couples making a very middle-class $60,000 would get about $200 from the Bush plan now and perhaps $900 when it fully phases in. You can bet the house that they'll do just about as well under the Democrats' plan.
Polls show that the public is still pretty indifferent to a big tax cut. Even after all the chatter about tax relief over the past month, only about 55% back Bush's plan, according to most polls. And that may be because real people know what the pols won't admit: The battle over taxes is really about who holds political power in Washington. But for most of us, the winner of Survivor 2 will matter more than who comes out ahead in the Great Tax Debate of 2001.
Gleckman is a a senior correspondent in Business Week's Washington bureau. Follow his views twice a month in Washington Watch, only on BW Online
Edited by Douglas Harbrecht
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