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Tax cut cartoon
03.28.03
Politics and Economy:
The Great Tax Debate
More on This Story:
Voices from the Debate

On March 27, 2003, some U.S. media outlets surprised themselves. They reported on a tax protest in an American town — but the protest was in favor of raising taxes. The day before THE NEW YORK TIMES published an editorial entitled "Budgetary Shock and Awe." The editorial stated in part:

Led by the Bush administration, the House and Senate are about to march under the public's radar screen and lead the country into a decade of budgetary disaster. The country is facing plenty of financial problems: the economy, the cost of the war on terrorism and the war in Iraq. Stunningly, Congress is preparing to make things far, far worse with more than $500 billion in tax cuts for the upper 1 percent of taxpayers.
The debate over the President's tax cut and stimulus plan revolves around several issues. Some worry about the growth of the federal deficit. Others question who benefits from the tax cuts, especially the much-touted elimination of the dividend tax. On the other side, individual and corporate advocates of the President's stimulus plan contend that much-needed funds will be added into the economy and fiscal benefits will be felt by every American family. Add on the costs of the war in Iraq and the knowledge that the majority of states are running in the red and the discussion heats up even more. (Find out more about the issue and the groups lining up on either side below.)

Pro-Tax Cut PlanAnti-Tax Cut Plan
If you look at [President Bush's] budget there are two sides to it this year. One is the significant tax reduction ending the double taxation of dividend income. The other part that he has talked about and that we're going to be fighting about all year, is spending restraint... I think what we're looking to do is to create a pro-growth economic policy that will create opportunities for all Americans. The job of the government isn't to go around and try and make people sacrifice, it's to try and make people free. The reason why we have a national defense is to protect our freedoms."

-Republican strategist Grover Norquist on NOW with Bill Moyers

"Now lots of income faces double taxation, in the sense that the same dollar gets taxed more than once along the way. For example, most of us pay income and payroll taxes when we earn our salary, then pay taxes when we spend it.

In practice, the Bush plan would exempt a lot of income—rich people's income—from all taxes. Thanks to the efforts of lobbyists, today's corporate tax code has as many holes in it as a piece of Swiss cheese and today's corporations take full advantage. Case in point: Between 1998 and 2001 CSX Corporation, the company run by the incoming Treasury secretary, John Snow, made $900 million in profits, but paid no net taxes—in fact, it received $164 million in rebates."

- Paul Krugman, The New York Times

"Although objections are obscure with economic gobbledygook, the real worry is political. Some 85 million investors—seniors in particular—will be ecstatic about relief from the double taxation of stockholder dividends. And they are likely to express their gratitude by voting Republican for years to come."

- Alan Reynolds, Cato Institute

"The Administration's proposal seeks to curb the double taxation of dividends at a substantial cost to the Treasury, but fails to address the 'zero taxation' of much corporate income that results from substantial tax avoidance. The proposal consequently would result in increases in budget deficits for years to come."

- Joel Friedman and Robert Greenstein, "Exempting Corporate Dividends from Individual Income Taxes," Center on Budget and Policy Priorities

"First, the Administration’s proposal will increase the number of U.S. jobs beyond the current forecast by an average of 1.8 million per year for the next two years and it will continue to create an average of 1.2 million jobs per year for the next five years.

Second, the study shows that the President’s proposal, when fully implemented, will increase GDP by 2.4 percent by the end of 2004. That growth is on top of the very anemic growth that has been predicted by most economists and certainly predicted by our chief executive officers.

Third, and very importantly, the study indicates that the dividend component of the President’s proposal will have the single most positive impact on our nation’s long-term economic growth of any of the provisions."

- "Impact of President's Economic Package," The Business Roundtable, January 30, 2003

"In the short run, the key to economic growth is expanded demand for the goods and services firms could produce given current capacity. In the long run, a key to economic growth is higher national saving, which finances ongoing expansions in capacity over time. Yet the Administration's proposals would have only modest effects on demand in 2003 and would expand budget deficits in the long run. All else being equal, the expanded budget deficits would reduce national saving in the long run, exactly the opposite of what would be needed to boost long-term economic performance. Furthermore, the proposals would exacerbate after-tax inequality of income in the United States."

- Peter R. Orszag, Senior Fellow, The Brookings Institution, Testimony on the Administration's Tax Proposals House Committee on Financial Services, Subcommittee on Oversight and Investigations, March 18, 2003

"The package is a godsend to taxpayers in every sector of the American economy....First, it will empower families an consumers to spend, save, and pay off dept through speeding up the tax relief passed by Congress in May of 2001. Second, it will promote capital expenditures and investment by eliminating the unfair double taxation of dividends....The plan will simplify and reduce taxes for millions of taxpayers, and especially senior citizens."

- Americans for Tax Reform

"According to the latest figures from the congressional Joint Committee on Taxation, President Bush’s fiscal 2004 budget includes $1.6 trillion in additional tax cuts over the upcoming decade. Counting the $0.4 trillion in added interest on the national debt that the tax cuts will entail, the total cost over the fiscal 2003-13 period will be almost $2 trillion if the plan is adopted by Congress—$100 billion more than the administration previously estimated.

In the current fiscal year, the Joint Committee data show that the President’s new tax cut plan will cost $41 billion, thus providing virtually no stimulus to our ailing economy. But by fiscal 2013, Bush’s new tax cut proposals will cost $431 billion a year including interest."

- Revised Estimate Pegs Latest Bush Tax Cut Plan at $2.0 Trillion Over Decade 3/18/03, Citizens for Tax Justice

Resources

Americans for Tax Reform (ATR)
Grover Norquist, a high-powered unofficial Republican strategist, heads this organization dedicated to smaller government. According to the ATR's mission statement, it "opposes all tax increases as a matter of principle." ATR has a Taxpayer Protection Pledge which it lobbies for state and federal representatives to sign. The pledge reads: "I (name) pledge to the taxpayers of the (district #) district, of the state of (state), and to all the people of this state, that I will oppose and vote against any and all efforts to increase taxes."

The Brookings Institution
The Brookings Institution is an independent, nonpartisan organization devoted to research, analysis, education, and publication focused on public policy issues in the areas of economics, foreign policy, and governance. The institution presents the findings of its social science analysis in language aimed at the general public. The Brookings site has information on the President's stimulus plan, a new working paper on the cost of war in Iraq by Andrew Stoeckel, Centre for International Economics and forums for debate on the federal budget. Brookings will hold a public debate on tax policy on April 8, 2003.

The Business Roundtable
The Business Roundtable is an association of chief executive officers of leading corporations with a combined workforce of more than 10 million employees in the United States and $3.7 trillion in revenues. The group advocates on issues of international trade, security, environment and the economy, fiscal policy and other matters. It sponsored a 2003 study on President Bush's stimulus package cited above and has recently called for enactment of "a $300 billion growth package to stimulate the nation's economy."

Center for Budget Policies and Priorities (CBPP)
The CBPP is a nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs, with an emphasis on those affecting low- and moderate-income people. Its Web site contains numerous analyses of the 2004 federal budget.

Citizens for Tax Justice (CTJ)
A nonprofit, nonpartisan research organization, CTJ's Web site provides analysis and policy recommendations in the interest of "fair taxation" at the local, state, and federal levels. The CTJ describes itself as an advocacy group fighting "against the armies of special interest lobbyists for corporations and the wealthy." The site has critical analyses of both Democratic and Republican tax plans.

Club For Growth
The Club for Growth describes itself as "one of the most influential private campaign organizations in the country." The Club sponsors, and recommends candidates who "supports the Reagan vision of limited government and lower taxes."

The Tax Relief Coalition (TRC)
The TRC is a member organization comprised of business associations nationwide (from the Agricultural Retailers Association to the Wyoming Retail Merchants Association).

Seniors Coalition
The Senior Coalition positions itself as "the responsible" alternative to the American Association of Retired People. Founded during the fight to repeal the Medicare Catastrophic Coverage Act in 1989, the Senior Coalition favors the elimination of the dividend tax.

The American Association of Retired People (AARP) has a "Face Off" debate feature on its Web site addressing the effect of the dividend tax elimination on senior citizens.

United for a Fair Economy
United for a Fair Economy is dedicated to providing economic literacy education and training resources to organizations and individuals on issues of income disparity. The organization "is grounded in the belief that our country would be a far more democratic, prosperous, and caring community if we narrowed the vast gap between the very wealthy and everyone else." The group has set up a special Shareholder Revolt Web feature which enables users to lobby against the dividend tax repeal.

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