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| COMPETING TAX PLANS | |
 October 17, 2000  |
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Paul Solman investigates the numbers behind the Gore and Bush tax plans.
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VICE PRESIDENT AL GORE: Almost 30 percent of his proposed tax cut goes only to Americans that make more than $1 million per year. GOVERNOR GEORGE W. BUSH: This is a man whose plan excludes 50 million Americans. VICE PRESIDENT AL GORE: Not so. GOVERNOR GEORGE W. BUSH: He said in his speech he wants to make sure the right people get tax relief. That's not the role of a president to decide right and wrong.
JIM HINES: By and large, lower-income people receive better deals under the Gore plan because the plan is really targeted toward lower-income people who meet specific criteria. Bush does a lot more tax cutting than Gore. And what Governor Bush's plan does is it gives an across-the-board cut in taxes that people pay so the top one percent is going to get about 30 percent of the benefits, because that is what they are paying right now. PAUL SOLMAN: And you can extend that to the richest 10 percent who right now pay roughly two-thirds of all income taxes would get about two-thirds of the benefits under Bush. But that should come as no surprise, Republicans since the Reagan era have aruged not only that the rich pay more taxes, but that they invest. Thus their tax benefits will supposedly be invested in the economy.
PAUL SOLMAN: Bush would also cut the tax rates in every other bracket. So that the current range of 15 to 39.6 percent would drop to a bottom of 10 percent a top of 33. In addition, he'd double the current child tax credit to $1000; and allow certain deductions even if you don't itemize. The total tab: more than a trillion-and-a-half dollars over the next ten years. PAUL SOLMAN: As to the charge against Gore that his target tax cuts will affect far fewer people, well "targeted" means they're not for everyone, and in his case certainly not for those at the top. Americans as a whole, Gore insists, will be better off if the projected budget surplus is used to pay down the national debt instead of cutting taxes.
PAUL SOLMAN: And Gore's targeted plan features plenty of targets: new tax credits for child care costs, medical expenses, elder care, energy efficiency; expansion of the earned income tax credit; a $10,000 deduction for college tuition. Total cost over the next decade: a third of Bush's about $500 billion. |
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| Doing the numbers | ||||||||||||||||||||
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PAUL SOLMAN: During the campaign, of course, neither candidate has quite acknowledged the accuracy of his opponent's critique. Instead both have claimed their plan is the one for that catch-all category of voters, the so-called "middle class." VICE PRESIDENT GORE: Here's a married couple with one child earning $60,000. Under my plan that would end up being about $1,000 additional tax cut; under my opponent's plan it would be about $600. GOVERNOR BUSH: This couple gets $2,655 of tax relief under my vision, under my opponent's vision they receive $392. PAUL SOLMAN: Such examples however have been picked with great care to avoid proving the other side's charges. So we tried out the tax plans on a more random sample. The non-partisan National Opinion Research Center helped identify a few families in Michigan -- where our tax expert was. Starting at this all-American subdivision in Canton, Michigan, home to the Kowalskis, a solidly middle-class family -- and, in my 30 years of journalistic experience, certainly the best prepared for Halloween.
PAUL SOLMAN: A lively crew, the Kowalskis are seven strong, though 12-year-old Kyle was away playing baseball, and represented here only by his photo. Dad Randy is a manager at UPS; mom LeAnn takes care of the kids full-time. PAUL SOLMAN: Adjusted income for the past year --adjusted gross. RANDY KOWALSKI: Last year was just over $69,000. Most of that is wages earned. Between dividends and interest, that's just over $2400. JIM HINES: The Kowalskis currently pay roughly $3,600 a year in income taxes. Under the Gore plan their tax bill would not change at all. Under the Bush plan they would pay only $512 in income taxes. PAUL SOLMAN: The keys to the benefits under Bush: the $500 additional child credit for, in this case, five children -- a $2500 tax rebate right there. And, says Jim Hines… JIM HINES: Lower tax rates in the brackets, you pay less tax. PAUL SOLMAN: Now if and when these kids go to college, the Gore plan with its tuition tax break suddenly looks better, as it would if things were different in other ways.
PAUL SOLMAN: But, at the moment, our financial snapshot of the Kowalskis brings one point into focus -- this is a family that the Bush tax cuts do reach, the Gore cuts don't. |
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| The low income tax payer | ||||||||||||||||||||
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PAUL SOLMAN: It's just the reverse for Nicole Anderson -- a 24-year-old single mother of three: Shyla, 6; Fernandez, 4, and Nadanna, 6 months. Anderson is an assembly line worker. 1999 income: $18,440.
PAUL SOLMAN: So you're working 48 hours a week and raising three children on your own? Are you a very tired person? NICOLE ANDERSON: Yes, I'm very tired. I walk around like this a lot. My uniform is like my outfit.
JIM HINES: So they get an additional $1,200 under the Gore plan. That comes from two sources. One is an expansion in the amount of earned income tax credit for families with three or more children. So they will get this additional $500 in the earned income tax credit. In addition, under the Gore plan there's a refundable dependent care expense credit, and they'll get in essence half of their dependent care expenses back in the form of a credit. PAUL SOLMAN: And that will be actually in the form of a check? JIM HINES: Exactly. $663. So you add it together and they get about $1200. PAUL SOLMAN: But wouldn't she get Bush's extra $500 a child? Well, no, for reasons you'll learn in a just a bit. Now, only 10 percent of the population makes less than Nicole Anderson; only 10 percent or so makes more than the Williamses. They're at the 90th income percentile--the starting line, you might say, for the go-go economy. That's 13-year-old Sean at the wheel. Besides Sean there's Joe, 8, Erin, 15, and their parents Nancy, a stay-at-home mom, and Pat, an auto industry executive.
PAUL SOLMAN: The Williamses fit into none of the Gore tax break categories. But they say they're not counting on the Bush tax cuts either. PAT WILLIAMS: At this point in the game it's all rhetoric. It doesn't mean a whole lot until one of them hits the office. NANCY WILLIAMS: There's a long way to go before we see any difference in his paycheck. It's not going to happen January 1. PAUL SOLMAN: If the tax plans were enacted, however, the Williamses, like most upper income Americans, would do better under Bush: their brackets would be lower. In addition, The Williams would cash in on the extra $500-per-child tax credit. JIM HINES: So their tax bill goes from roughly $17,500 to roughly $14,000. PAUL SOLMAN: Now they have a daughter who during the next presidential administration will be going to college. JIM HINES: Under the Gore plan only there will be tuition deduction of $10,000. And since the family is in roughly a 30 percent tax bracket, they would save about $3,000. |
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| Who wants to tax a millionaire? | ||||||||||||||||||||
| PAUL SOLMAN: Now as these numbers flash by,
a word of caution. Before you try this at home on your own tax returns,
remember: Jim Hines is a highly trained professional who makes it looks
easy. Although we did get glimpses of the effort behind the expertise.
As when Hines needed to consult the 192-page Web write-up of the Gore plan… Or, when he had to phone a friend about whether Nicole Anderson, our single mother, would get the $500 child tax credits under the Bush plan.
PAUL SOLMAN: Actually, it took two calls to confirm that since she gets an earned income tax credit, Anderson wouldn't get more money back under Bush. JIM HINES: Does that amount affect the EITC phase-out? PAUL SOLMAN: Okay, so what have we learned from our families? Well, both plans depend on the particulars, though Gore's more so, because it's targeted. Bush's, with bigger cuts, benefits more people. But remember Gore's argument: Bush's cuts benefit the wealthy the most. So we ended with tax payers whose incomes a million dollars a year -- the benchmark Gore keeps talking about. JIM HINES: Under Gore the millionaire pays about $350,000 in taxes, and under Bush the millionaire would pay roughly $300,000 in taxes. PAUL SOLMAN: So the person with a million dollars in income basically would benefit $50,000 because the top rate goes down from the high 30s to the low 30s. JIM HINES: Exactly. PAUL SOLMAN: And that's the whole story. JIM HINES: That's all there is to it. PAUL SOLMAN: To which we can only add: after wrestling with these numbers for weeks ourselves, it's easy for him to say. |
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PAUL
SOLMAN: Now, in this campaign, it turns out both candidates are essentially
right in their critiques of each other's tax plans: Vice President Gore's
targeted cuts would reach far fewer people than Governor Bush's; the
governor's cuts would overwhelmingly benefit the well-off. University
of Michigan Business School Professor Jim Hines, one of the country's
foremost tax economists explains:
GOVERNOR
BUSH: So my plan reduces the number of brackets from five to four to
make the code more simple. It drops the top rate from 39.6 to 33 percent.
And let me tell you why that is important, I believe that one of the
reasons that our economy is as strong as it is today is because of the
tax cuts by President Ronald Reagan in the '80s — by reducing taxes.
VICE
PRESIDENT AL GORE: And that is why, let me make it clear, I will not
go along with any plan to take the entire surplus and squander it on
a big tax cut for the very wealthy at the expense of the middle class
when we need to use it to keep our prosperity and progress going.
KOWALSKIS
ON TRAMPOLINE: Family butt slam! 1.. 2... 3...
JIM
HINES: If they had after school expenses for children up to age 16.
If they had greater health expenses than they do. If they were supporting
an elderly person, paying for more than half of their expenses, they
would get a better benefit under the Gore plan. 
NICOLE
ANDERSON: The hourly pay is $8.45. I start at 5:00 in the morning. Ten
hours a day, Monday through Thursday mandatory; and most Friday's too,
but Friday is 8 hours.
PAUL
SOLMAN: Most of Anderson's daycare expenses here at Focus Hope in Detroit
-- some $300 a week -- are paid by the State of Michigan, but her share
$1300 a year is still a huge stretch for an income that's right on the
poverty line. Gore would help Anderson pay for child care, as well as
expand the Earned Income Tax Credit, a program designed to help offset
Social Security taxes for the working poor. Last year, the EITC provided
her with a $2500 check from the government.
PAT
WILLIAMS: Our adjusted gross income was $113,000. About $8- or $9000
interest income. The balance was base wages.