The surplus is dead; long live the deficit! George W. Bush has done it; he's brought back the 1980s. All of that fiscal agony Americans went through over the past decade to eradicate the dreaded federal deficit was not in vain. The budget balancing of the Clinton years, we now see, had a purpose, but it wasn't to put the government on sound financial footing; it was to create a collective pot of money in Washington that could be given away to the highest bidders in the form of tax cuts.
In truth, the surplus still exists -- to the extent that something based on projections can be said to exist -- but its nature has fundamentally changed; it's suddenly much smaller, since a large part of it has undergone a metamorphosis from public money to private money. The discretionary (non-Social Security) portion of the 10-year, $5.6 trillion surplus (an estimated $3.1 trillion) has officially shrunk by $1.35 trillion due to the Bush tax cut, and anticipated public spending will be severely curtailed as a result. In exchange, however, the cash-flow prospects of America's wealthiest citizens have been considerably brightened, and private spending (for those in the right income brackets) will know few limits.
The "compromise" tax cut Congress enacted is not quite what the White House wanted, but at 85% of the original request, it's close enough. Nearly three-quarters of the money will still go to the upper 20% in income, half of that to the upper 1% (earnings above $373,000 a year), who neither need nor deserve tax relief. These lucky folks stand to receive average annual rebates of around $50,000. Nevertheless, some might ask, why should we be concerned about a tax cut for those whom the president says pay most of the taxes? There are several reasons.
First of all, they don't pay most of the taxes, particularly if payroll levies are included in the mix. The richest 1% of Americans pay, according to the respected Center on Budget and Policy Priorities, one-quarter of all federal taxes; yet, they stand to receive over one-third of the Bush tax cut. Furthermore, the fact that the wealthy are paying more gross income taxes than average citizens on an individualized basis doesn't mean they are overtaxed, but that they've done so well lately; when you make more, you pay more.
The tax structure is (or, until recently, was) based partly on ability to pay, the theory being that those benefiting the most from the existing system both can and should ante up more for its maintenance. Under the new tax law, that will decreasingly be the case. Give George W. credit for candor; he believes and has said that those who are most successful should, as a reward for their good fortune, pay less. That's counter, however, to the fundamental tenets of progressive taxation.
The second reason to be concerned about the tax cut is that funding for a myriad of needed government initiatives will dry up for the foreseeable future. Looking forward to a prescription drug benefit under Medicare? Sorry, you can't have it -- at least in any meaningful sense that goes beyond symbolism. Believe the 44 million medically uninsured Americans constitute a national disgrace? Sorry, we can't help them; the money is gone. Expecting enhanced government outlays for public education, public health, public safety, public transportation, public infrastructure? No can do; the money is spent. Analysts have concluded that when congressional budgetary gimmicks are factored in, the tax cut will actually consume not $1.35 trillion over 10 years, but at least $1.9 trillion, and perhaps as much as $2.3 trillion, over 11 years. That will pretty much empty the cookie jar.
Here's another reason to be concerned: an absence of basic fairness. The tax cut -- even assuming we need one -- leaves out a large portion of working Americans. By 2006, the Bush program slashes marginal income tax rates for families earning over $297,000 a year from 39.6 to 35%, or nearly 5 percentage points. Tax brackets for all other families with incomes above the national median ($45,000) are reduced by 3 points, giving a rate cut to the top one-half of earners. However, the two-fifths of families in the sub-median $12,000-$45,000 category -- comprising nearly half of all working Americans -- see no change at all in their marginal tax rate. To the Bush administration, people below median income simply don't earn enough (and lack the requisite entrepreneurial potential) to deserve a rate reduction.
An additional reason for concern lies with the surplus itself, the pot of gold being used (supposedly) to fund the tax cut. No one -- and that includes the president's advisors -- really knows if it will even exist a decade from now; in fact, there are good reasons to suppose it won't. For starters, the surplus is largely predicated on a continuation of tax receipts at current levels. This doesn't take into account economic slowdowns, such as we are now experiencing, and the accompanying job and investment losses that eat into IRS collections.
Since the Nasdaq started its downward slide a year ago, for instance, an estimated 110,000 high-tech workers have joined the ranks of the unemployed or underemployed, and are no longer paying income taxes on boom-era salaries. Add to that the loss in tax revenues from reduced capital gains in a slumping stock market. Federal receipts on equity sales, which according to Fortune magazine were over $100 billion in 1999 and 2000, declined to $70 billion this year and are expected to fall to $60 billion in 2002. In short, the Bush crowd plans to pass out money it may not have, and if there is a serious recession in the out years, their tax giveaway will plunge the country straight into deficit.
That prospect doesn't disturb the Republican right. The spectre of post-surplus deficits would give them the cover they need to propose radically shrinking the federal government by de-funding agencies and programs. This is the dark side of the tax cut, the unspoken goal of movement conservatives that reinforces the president's more mundane objective of rewarding his friends in the millionaire-billionaire community.
The good news in all of this is that federal tax cuts are not necessarily forever. Tax programs similar to that of George W. Bush were also enacted by Republicans in the 1920s and 1980s; top rates were reduced to 25% under Calvin Coolidge and to 28% under Ronald Reagan. In both cases, these greedy raids on the national treasury were reversed within a few years by Democrats.
We can only hope and assume that the election of a president and Congress less beholden to the wealthy will deal similarly with the Bush tax cut in the years ahead. Of course, Sen. Jim Jeffords might have kept it all from happening to begin with, had his abandonment of the GOP been more timely. Nice to have you aboard, Jim, but you were a day late and a dollar short.
Wayne O'Leary is a writer in Orono, Maine.