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Duped and Betrayed
June 6, 2003 By Paul Krugman

The New York Times

According to The New Republic, Senator Zell Miller - one of a dwindling band of Democrats who still think they can make deals with the Bush administration and its allies - got shafted in the recent tax bill. He supported the bill in part because it contained his personal contribution: a measure requiring chief executives to take personal responsibility for corporate tax declarations. But when the bill emerged from conference, his measure had been stripped out.

Will "moderates" - the people formerly known as "conservatives" - ever learn? Today's "conservatives" - the people formerly known as the "radical right" - don't think of a deal as a deal; they think of it as an opportunity to pull yet another bait and switch.

Let's look at the betrayals involved in this latest tax cut.

Most media attention has focused on the child tax credit that wasn't. As in 2001, the administration softened the profile of a tax cut mainly aimed at the wealthy by including a credit for families with children. But at the last minute, a change in wording deprived 12 million children of some or all of that tax credit. "There are a lot of things that are more important than that," declared Tom DeLay, the House majority leader. (Maybe he was thinking of the "Hummer deduction," which stayed in the bill: business owners may now deduct up to $100,000 for the cost of a vehicle, as long as it weighs at least 6,000 pounds.)

Less attention has been paid to fine print that reveals the supposed rationale for the dividend tax cut as a smoke screen. The problem, we were told, is that profits are taxed twice: once when they are earned, a second time when they are paid out as dividends. But as any tax expert will tell you, the corporate tax law is full of loopholes; many profitable corporations pay little or no taxes.

The original Bush plan ensured that dividends from such companies would not get a tax break. But those safeguards vanished from the final bill: dividends will get special treatment regardless of how much tax is paid by the company that issues them.

This little change has two big consequences. First, as Glenn Hubbard, the former chairman of the president's Council of Economic Advisers and the author of the original plan, delicately puts it, "It's hard to get a lot of progressivity at the top."

Translation: wealthy individuals who get most of their income from dividends and capital gains will often end up paying lower tax rates than ordinary Americans who work for a living.

Second, the tax cut - originally billed as a way to reduce abuses - may well usher in a golden age of tax evasion. We can be sure that lawyers and accountants are already figuring out how to disguise income that should be taxed at a 35 percent rate as dividends that are taxed at only 15 percent. Since there's no need to show that tax was ever paid on profits, tax shelters should be easy to construct.

Of course, the big betrayal was George W. Bush's decision to push this tax cut in the first place. There is no longer any doubt that the man who ran as a moderate in the 2000 election is actually a radical who wants to undo much of the Great Society and the New Deal.

Look at it this way: as the Center on Budget and Policy Priorities points out, this latest tax cut reduces federal revenue as a share of G.D.P. to its lowest level since 1959. That is, federal taxes are now back to what they were in an era when Medicare and Medicaid didn't exist, and Social Security was still a minor expense. How can we maintain these programs, which have become essential to scores of millions of Americans, at today's tax rates? We can't.

Grover Norquist, the right-wing ideologue who has become one of the most powerful men in Washington, once declared: "I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub." Mr. Bush has made a pretty good start on that plan.

Which brings us back to Senator Miller, and all those politicians and pundits who still imagine that there is room for compromise, that they can find some bipartisan middle ground. Mr. Norquist was recently quoted in The Denver Post with the answer to that: "Bipartisanship is another name for date rape."  

Published on Tuesday, June 6, 2003 by the New York Times

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