Tax cut bill headed for Bush’s desk, but the price tag is much higher than advertised

I could write every day about Bush’s tax cut, but I’ve been waiting until the House and Senate agreed on a version of the bill to send to the White House for Bush’s signature.

As you’ve probably heard by now, a $350 billion tax cut plan has passed the House and Senate, though it was awfully close in the latter, with VP Cheney having to cast the deciding, tie-breaking vote.

In the coming days, you’ll be hearing a lot about the plan and its cost. On the face of it, the plan cuts taxes $320 billion and throws in an additional $30 billion in aid to cash-strapped states. You might recall, Bush originally requested a $726 billion tax cut, and mocked the puny $350 billion plan as a “little bitty” tax cut.

So was this a big defeat for Bush’s agenda? Hardly. Bush is getting what he wanted — a gigantic tax cut for wealthy Americans who don’t need one at a time of record-high budget deficits, spiraling debt, raising unemployment, stagnant growth, and dwindling funds for Social Security and Medicare. Bush may have won a legislative victory, but America has suffered a terrible defeat.

This tax plan will disproportionately benefit the wealthy, and don’t let anyone tell you otherwise. According to research completed by the Urban Institute-Brookings Tax Policy Center, millionaires will enjoy $93,500 in tax cuts this year, whereas families with incomes in the middle will get $217. Just like in 2001, Bush is selling this plan as one that benefits everyone, but the truth is the very wealthy will benefit a whole lot more than everyone else.

One important thing to remember is that the tax cut plan is worth $350 billion on paper, but it’s almost certainly going to cost a whole lot more. To make the cost of the plan appear smaller, the administration and Congress included a series of budget tricks called “sunset clauses.”

Essentially, several key tax cuts, according to this plan, will disappear as early as two years from now. In other words, the tax rate will shrink this year, but would be due to return to the higher level in a couple of years. The plan includes this budget trick on tax breaks for married couples, cuts on capital gains, and most importantly, Bush’s dividend tax break.

In practice, consider how this applies to something like the tax credit for families with children. The credit is $600 right now, but that will increase to $1,000 this year with the new tax plan. Next year, however, the credit will drop to $700, gradually increasing again to $1,000, only to see it fall again to $500 by the year 2013. Will any of this happen? Of course not. I guarantee in less than a year Bush will be calling on Congress to make the cuts permanent, suggesting that anyone who disagrees is anti-family.

No one adjusted to reality really believes Congress will allow all these tax cuts to suddenly disappear when their respective deadlines approach. Just as Bush’s original tax plan from 2001 included “sunset clauses” to hide its true cost, the president has spent months arguing those cuts should be made permanent. The same thing will happen with this round of cuts, and everyone knows it though few want to admit it.

So what is the real cost of the plan? David Rosenbaum in the New York Times explains today, “If these elements of the tax cut are calculated on a 10-year basis, the cost in lost revenue stands to be over $800 billion,” which is even higher than Bush’s original and unreasonable $726 billion request.

Gene Sperling, President Clinton’s national security advisor, explains this in excellent detail in a must-read column in today’s LA Times.

“Every time the administration faces charges that its tax-cut policy is leading to a dramatic deterioration of our fiscal future, the White House plays games to convince the public, and perhaps itself, that the cuts and their long-term effects are smaller than they actually are,” Sperling said.

He added, “The 2001 tax cuts — including interest costs on the additional debt they entail — will cost at least $2.6 trillion through 2013. And that number climbs to $3.2 trillion after the alternative minimum tax is modified to ensure that all Americans are receiving their promised tax cuts. Now add the full costs of the administration’s new proposals to exclude taxation on dividends and add or extend even more new tax cuts and, presto, we are looking at a combined tax cut of more than $4 trillion through 2013.”

That’s $4 trillion dollars in cuts when the nation is already $6 trillion dollars in debt, we’re running the largest deficits in the history of the world, we’re fighting costly wars against terrorism, and we’re just a decade away from absorbing the costs of the Baby Boom generation retiring and as they put an unprecedented burden on Social Security and Medicare.

This is more than just foolish and worse than just irresponsible. It’s obscene.