It’s an election year, and no one wants to be against tax cuts with just 40 days before voters go to the polls, so Congress passed a new round of tax cuts yesterday at a price of almost $146 billion.
Putting aside efforts to control the federal deficit before the elections, Republican and Democratic leaders agreed Wednesday to extend $145 billion worth of tax cuts sought by President Bush without trying to pay for them.
At a House-Senate conference committee, Democratic lawmakers abandoned efforts to pay for the measures by either imposing a surcharge on wealthy families or closing corporate tax shelters.
Bush wanted more tax cuts, congressional Republicans wanted more tax cuts, Dems wanted to figure out a way to pay for the cuts but got overruled by the GOP, yada, yada, yada. Every penny of the $146 billion will be added to the already-record high deficits Bush and the Republicans swore they’d avoid.
All of this, of course, is par for the course. But before this is dismissed as business-as-usual campaign tactics, it’s always fun to see who wins and who loses when a Republican White House and Republican Congress get together on tax cuts.
Congressional negotiators beat back efforts yesterday to expand and preserve tax refunds for poor families, even as they added $13 billion in corporate tax breaks to a package of middle-class tax cuts that could come to a vote in the Senate today.
A $7 billion measure that would have extended child tax credits to poor families was rejected by the GOP, which then turned around and backed a $13 billion provision for business tax breaks.
The Republicans have their priorities; are they yours?
And before we move on, champions of the tax cuts will insist, as they did yesterday, that the point of this new round of cuts is to expand breaks for middle-class families. However, a study by the Center on Budget and Policy Priorities explains that those in the middle won’t really benefit from the new policy.
Most middle-class families will have lower tax bills over the next several years if these tax cuts are extended than if they are allowed to expire. Yet, it is far from clear that middle-class families will be better off over the longer term. To the contrary, there is reason to believe that a majority of middle-class families could end up worse off, for two related reasons:
First, although the legislation is being promoted as aimed at the middle class, it would provide many middle-class families with only modest gains; the primary beneficiaries would be higher-income families. New data from the Urban Institute-Brookings Institution Tax Policy Center show that households in the middle fifth of the income spectrum would receive an average tax cut from the legislation of $169 in 2005, while households in the top fifth would receive an average tax cut of $1,196. Those with incomes between $200,000 and $500,000 would receive an average of $2,172.
Second and more importantly, although the bill is not expected to include “offsets” to pay for the cost of its tax cuts, sooner or later the federal government will have to cover these costs, either by raising taxes or by cutting programs. These financing measures ultimately will offset part or all the gains that many families receive from the tax cuts. Since the gains that many middle-class families will secure from these tax-cut provisions are modest, there is a substantial possibility that many, if not most, middle-class households will lose more from the measures ultimately adopted to offset the tax cuts’ costs than they receive in tax-cut benefits.