New Tax Cuts Reviewed

On Friday congress approved a third round of tax cuts supplementing two previous packages from 2001 and 2003. President Bush is expected to sign the new package. The two main elements of the plan are an extension, through 2010, on the 15% tax rates on capital gains and dividends, and increasing the alternative minimum tax (AMT) threshold. The scent of tax cuts will no-doubt prove timely as gas prices continue to rise for the summer and the 2006 election season heats up.

Economists agree that the tax cut is aimed at businesses, investors, and15 million upper-middle-income taxpayers.

Investors will continue to pay a 15% rate on capital gains and most dividends through 2010.

The upper-middle-class gets a reduction in the AMT which was originally created in 1969 to prevent the rich from paying no taxes. Since it was not indexed for inflation it now threatens 15 million upper-middle-class tax payers, generally those who make over $160,000. The minimum income on this tax will be increased so fewer will have to pay the tax.

Middle-income couples with children are also seen as winners. Since the 2001 tax cuts they have had their income tax rates lowered and their child tax credit doubled.

An analysis by the non-partisan Tax Policy Center estimates that millionaires would save an average of $42,000, while people earning less than $50,000 would save less than $50.

Economists have pointed out that the 2001 and 2003 tax cuts have always sharply favored upper-income Americans. It is no secret that a core Republican philosophy is to ease the burden on business and investors in the hope that those savings will result eventual benefits to those in lower income levels in the form of cheaper goods or job growth; a principle known as “trickle down” or “supply side” economics. Economists credit the 2001 and 2003 tax cuts as at least one reason why the economy has improved.

However, the biggest problem most experts see is the growing disparity between the amount the government has spent since 2001 and the amount it has brought in. Many believe this deficit needs to be addressed immediately, but this current plan now extends the tax cuts through 2010. Can our deficit troubles be overcome by a strong economy? Most experts do not think so. They say what is needed is responsible government spending coupled with adequate income.

Regardless, the latest round of tax cuts will play a hand in the 2006 elections. There will be plenty of talk about how you’re better off because of your tax cut. But that appears to be more abstract than it sounds. If you’re like the majority of Americans you probably wont see any noticeable decrease in the amount of taxes you pay. But the result may also be that you get off unemployment because more businesses, now saving even more on taxes, can afford to hire your services.

It comes down to how much should we pay in taxes? Republicans usually want less and they want to pass the savings on to businesses and upper-class Americans who own and invest in business. Democrats generally believe in more taxes with the money going to fund social programs. Which way is better? Is what is good for business always what is good for the average American?

When troubled we are often encouraged to ask: what would Jesus do? Would Jesus favor supply-side benefits favoring the rich and business owners? Or would he expect Christians, as his body, to do what he did during his earthly ministry: heal the sick and feed the poor? This country is obviously a good place to do business. If good business is supposed to trickle down to the lowest levels, why do we have so many living in poverty?

The economy may be growing but the poverty rate rose in 2005 for the fourth year in a row, up to 12.7%. In America 21.9% of children live in poverty. That is the highest rate of any modern country except for Mexico. Meanwhile France, which can hardly be accused of having a supply-side policy and lean taxes, has 7.5% of its children in poverty.
So, I fail to see how the benefits of supply side economics-- which may help business, and may spur the economy— reach the lowest levels of society.

What we should be concerned about is what works. Some countries take it on the chin, they accept higher taxes to fund social programs that fight poverty by equipping workers and funding education. Tax codes that favor rich investors may be good for business, but that does not automatically mean they are good for the poor. Personally, I don’t think corporations are a good place to look for benevolence. Their job is to make a profit. They will take that extra tax saving and hire you only if you can help them make a profit. You’ll be one more mine worker given a gas mask that hasn’t been inspected because it costs too much. Until you see some benefit in taxes: a tax break so you can finish school, or a social program to help you do so, you’ll be at the company’s mercy. And when they're done with you they're done.

What’s good for you is good for business, not the other way around. An equipped worker can ensure his best interests, and is also a better asset to the company. You should be able to run your own life and your own career and the taxes you pay should help you do so. The question you should ask is: who gets empowered by the money I pay the government? The answer should be: you.