Unbalanced!
How the budget deal affects Rollin N. Munee:
Name : Rollin N. Munee, Esq.Occupation:Senior VP, Conquest Inc.Annual Income (aftertax):$375,000 salary$18,000 investment incomeFamily:Wife (not employed),two kids in Ivy League schoolsHobbies:Yacht racingOpinion of the 1997balanced budget agreement:"It's about time we stoppedpunishing people for making money."
1. Capitol Gains + $7939Instead of paying a 40% tax on profits from selling stocks, bonds and real estate, Rollin will now pay about 20%, under the new 1997 tax law.
2. Child Credits 0Rollin doesn't qualify: The $500 per child tax credit is phased out for couples with incomes over $110,000.
Cartoon: ©Bill Yund
3. Education Tax Credits 0Supposedly, the tax credit for college tuition will not apply to couples who earn more than $100,000 a year. But according to Citizens for Tax Justice many well-off families will be able to get around these limits by shifting income to their children.
4. Estate Taxes + $6313Under the new law, the $600,000 tax exemption will be increased to $1 million, and to $1.3 million (starting in 1998) for estates consisting mainly of family owned businesses. This allows Rollin to hold onto more of his share of the inheritance from his great-aunt Jesamine's oil interests.
5. Corporate Tax Cuts + $2353The bill eliminates most of the corporate Alternative Minimum Tax, which has helped insure that most large profitable corporations pay at least some federal income tax. The 1997 tax act reduces corporate income taxes by about $6 billion a year. As a corporate VP with stock options, Rollin will reap some of the benefit.
6. Excise Tax Hikes - $451The new tax law will maintain the expiring excise tax on airline tickets, and increase the cigarette tax from 24 to 39 cents a pack in 2002.
Rollin's net gain: + $16,154
It was billed as a great bipartisan triumph, the first balanced budget in a generation. Bellowing on the White House lawn, President Clinton called it an "historic agreement that will benefit generations of Americans." Well, maybe generations of wealthy Americans. As the Wall Street Journal noted, "Overall, it's a good bill for Wall Street."
The 5-year budget agreement got overwhelming support in Congress, passing the House by a vote of 398-43. Only eight Senators dared to vote against it. Legislators from both parties are eager to claim credit for erasing the federal deficit.
But reducing the deficit is only a small part of what this agreement does. It is filled with tax cuts that will benefit the narrowest slice of wealthy Americans, probably for decades to come. According to Citizens for Tax Justice, the richest one percent of Americans will get a $16,000 tax break under this tax plan, while the middle class will recoup a meager $200. Meanwhile, people at the lowest income levels are headed for a net tax increase.
How, you might ask, does cutting taxes help us balance the budget? It doesn't. The balanced budget is achieved mostly by cuts to Medicare, the public health program for the elderly. The measure's cuts in Medicare, Medicaid, veterans programs and housing programs will total $138 billion by 2002. And according to the Economic Policy Institute, the budget effectively cuts public investment spending (on things like infrastructure, research and development, education and training) by about $30 billion over the next five years.
A SIMPLE GIVEAWAY
The budget's capital gains tax cuts and estate tax cuts apply mostly to the rich. And yet, hardly anyone even bothers to argue anymore that giving rich people more money will cause new jobs to be created or improve conditions for anyone but themselves. It's simply a giveaway. The Economic Policy Institute points out that "At present, the aftertax profit rate is higher than it has been at any point in the last 40 years. If this high rate is not providing an incentive for firms to invest, then it is difficult to see that anything as indirect as a capital gains tax cut could have a positive impact." Concedes Business Week: "Even some conservatives doubt that cutting capital gains will encourage long-term investment."
The agreement also gives corporations a break. It eliminates most of the corporate Alternative Minimum Tax, which has, till now, helped to insure that big, profitable companies pay at least some federal income tax. Then there are the bevy of tax loopholes aimed at specific industries and companies -- like Amway, which managed to squeeze $283 million out of the deal.
WHAT ABOUT THE REST OF US?
The agreement does include some tax cuts aimed at people who aren't filthy rich -- a $500 per child tax credit and a tax credit for college tuition. But analysts say these are of limited value to the poorest Americans because in most cases, they don't have enough tax liability to start with. Critics also complain that the child tax credit is not indexed to inflation, which means it will lose value every year. And unfortunately, the rules for computing the child credit are very complex and will require millions of families to fill out complicated tax forms.
The agreement does, thankfully, restore aid to legal immigrants that was cut off after last year's bipartisan welfare "reform" disaster.
And it includes a plan to provide health insurance to some of the nation's uninsured children. But only a fraction of the children who need it will benefit, and the grant will insure fewer children as the years pass because its funding levels decline over time.
Unfortunately, the budget agreement will only get uglier as time goes on. According to analysts from the Center on Budget and Policy Priorities, the value of the budget package's various social programs (like the child health block grant) will decline by 37 percent by 2003, after adjusting for inflation. And by 2007, the budget's three tax cut provisions aimed primarily at the wealthy will cost almost twice as much as all of the social program initiatives combined.
DEFICIT REDUCTION? NAH.
Ironically, the "balanced budget agreement" actually increases the nation's deficit in its first few years. Only in 2001 will the deficit dip to levels below this year's. That's because many of the cuts in domestic programs won't kick in until later, when this budget deal is a dim memory and few of us will remember who's to blame.
The fact is, most of the progress toward a balanced budget was made between 1992 and 1997, when the deficit slid from $290 billion to an estimated $25 billion this year. Much of the savings came from the post-cold war era's modest scale-down in military spending.
But forget all that. Just watch the happy Democrats and Republicans gloating on the White House lawn and the Capitol steps over their bipartisan victory. As they say, it's a win-win solution -- for the politicians of the twin parties. The only losers in this deal are working and unemployed Americans. *
Name:Tyra D. Workin
Occupation:Works part-time for a non-union
janitorial service
Annual Income:
$12,500
Family:
Single mom supporting two kids, ages 9 and 11.
Hobbies:
"Are you kidding? When?"
Opinion of the 1997 balanced budget agreement:
"Wish somebody'd help me balance
my budget."
Cartoon: ©Bill Yund
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