WASHINGTON, May 15 (UPI) -- The UPI think tank wrap-up is a daily digest covering opinion pieces, reactions to recent news events and position statements released by various think tanks. This is the second of several wrap-ups for May 15. Contents: what to leave out of the Bush tax plan; jobs, trade deficit, FCC decision, Saudi bombing.
The National Center for Policy Analysis
(The NCPA is a public policy research institute that seeks innovative private sector solutions to public policy problems.)
The tax budget: what to leave behind?
by Bruce Bartlett
DALLAS -- Anyone who has ever packed for a long trip knows how the Bush administration is feeling today. There is never enough room in your suitcase for all the things you want to bring with you and some stuff must be left behind. So too, there is just not enough room in the budget for the administration to get all its tax initiatives this year. It is now in the process of deciding what to leave behind.
Deciding what to keep and what to leave behind is mostly an accounting exercise at this point. As a practical matter, all tax initiatives must fit into a suitcase holding no more than $350 billion over 10 years. This is the maximum amount of net revenue loss allowed under the Senate budget resolution.
Although the House would support a tax cut as large as $550 billion (or even larger), it will take enormous effort just to get any tax cut through the Senate. Therefore, the Senate constraint effectively is binding for the final legislation.
How to divide up this precious $350 billion is the Treasury Department's principal occupation these days. Although the Treasury has its own calculations of the revenue loss associated with the tax proposals President Bush put forward in January, congressional rules require that only the estimates made by the Joint Committee on Taxation are valid. These data are posted at www.house.gov/jct for anyone who is curious.
Looking at the JCT data, we see that the most popular tax provisions under consideration, those that would pass most easily, use up almost all the revenue available for a tax cut. These include expansion of the 10 percent and 15 percent income tax brackets, acceleration of tax rate reductions being phased-in under the 2001 tax bill, expansion of the standard deduction in order to redress the marriage penalty, an increase in the amount of income exempted from the Alternative Minimum Tax, and an increase in the amount of equipment that small businesses can write-off immediately. Altogether, these provisions are estimated to reduce federal revenues by $333 billion between 2003 and 2013.
Clearly, this leaves very little room for President Bush's signature initiative -- eliminating the double taxation of corporate profits. That proposal alone would reduce revenues by $396 billion -- more than the total mount of revenue available for the entire tax bill. Obviously, Congress is not going to pass a tax bill that does nothing except cut taxes on dividends. So, the question is, how to shoehorn as much of the dividend exemption into the money that is available.
House Ways and Means Committee Chairman Bill Thomas dealt with the problem by essentially abandoning the goal of fully eliminating taxes on dividends. He would establish a maximum tax rate on dividends of 15 percent -- a significant reduction from the 38.6 percent top rate on ordinary income. This cut the cost to $246 billion -- still too high for the Senate.
Senate Finance Committee Chairman Charles Grassley proposed phasing in the president's dividend proposal and then sunsetting it after 2005. Under this plan, taxes on dividends would be eliminated for just one year and then they would be fully taxed, as they are now, beginning in 2006. The sole purpose of this maneuver was to squeeze as much of the president's proposal into the amount of money available. According to the JCT, Grassley's scheme would only cost $91 billion.
But even at a minuscule $91 billion -- less than a fourth of what President Bush proposed -- the dividend plan would not fit into the $350 billion cap without further adjustments. In committee, the dividend provision was further limited to an exemption of just $500 per taxpayer and Senator Grassley proposed raising revenues by $63 billion. This got the net revenue loss for the entire tax bill down to $350 billion.
The Bush administration rejects the $500 cap as unacceptable. But it still has not decided how best to pursue its goal, given that there is really just $80 billion available at this point for whatever it chooses to support. Two options seem to be emerging. One is to press for full elimination of double taxation for just three years and then revisit the issue later. According to the JCT, this would cost $78.5 billion between 2004 and 2006. After that, dividends would be taxed as they are now.
The other idea is to do some variation of the Thomas proposal. Cutting the dividend tax and the capital gains tax to 15 percent could be done for four years at a cost of $89 billion. Raising that rate to 16 percent or 17 percent would get that figure down under $80 billion. Some economists believe that this would give the economy more of a boost than a temporary elimination of double taxation.
In the days to come, Bush will have to choose which way to go.
(Bruce Bartlett is a senior fellow with the National Center for Policy Analysis.)
The Institute for Public Accuracy
(The IPA is a nationwide consortium of policy researchers that seeks to broaden public discourse by gaining media access for experts whose perspectives are often overshadowed by major think tanks and other influential institutions.)
Jobs, trade deficit, FCC decision, Saudi bombing
WASHINGTON -- Holly Sklar, co-author of the book "Raise The Floor: Wages and Policies That Work For All of Us."
"If you want to stimulate unemployment, deficits and inequality, keep cutting taxes. More than 2 million jobs have been lost on President Bush's watch. Like the 2001 tax swindle, the 2003 tax cuts will hurt the economy, not help it. The Bush team wants to remake the tax system for the wealthy, increasingly exempting money from investments while taxing paychecks. They want a big deficit, as Reaganites did, to strangle public services they don't like. In the words of Reagan budget director David Stockman, 'Greed came to the forefront. The hogs were really feeding.'"
-- Doug Henwood, editor of the Left Business Observer.
"Like most big things, the trade deficit has many causes -- the erosion of U.S. manufacturing, the growth in outsourcing, an overvalued currency, low savings rates. But unlike many big things, a lot of people are ignoring it. To fund this massive deficit, the United States needs about $2 billion every business day of capital inflows from abroad -- and Bush's military buildup and tax cuts will only increase the need. Is running up giant foreign debts while telling the rest of the world what to do a sound political or
economic strategy?"
-- Robert McChesney, author of "Rich Media, Poor Democracy" and research professor in the Institute of Communications Research at the University of Illinois at Urbana-Champaign (on the pending FCC decision about deregulating media ownership.)
"The FCC would typically delay decision-making as it has been asked to do in this case. But that would mean more scrutiny, and the FCC is avoiding that. The public has spoken: It is diametrically opposed to letting fewer media companies own more and more. Around 99.9 percent of the 9,000 public comments to the FCC has opposed relaxing the media ownership rules. It is only a slight exaggeration to say that there are more Americans who would like to see Osama bin Laden's bust on Mount Rushmore as there are who want the monopoly media the FCC is rushing to permit. The stakes are so high that we need to do the exact opposite of what the FCC is trying to do: We need wide open public debate and deliberation on what media ownership policies make the most sense to promote a democratic society."
-- William Hartung, director of the World Policy Institute's Arms Trade Resource Center.
"The fact that one of the targets in Saudi Arabia was a U.S. private military corporation called Vinnell raises serious questions about the role of 'executive mercenaries' and corporations that profit from war and instability. This is the second time in eight years that Vinnell's operations in Saudi Arabia have been the target of a terrorist attack. In 1995 a car bomb blasted through an Army training program Vinnell was involved with." (Hartung wrote an article for the Progressive magazine about Vinnell entitled "Mercenaries Inc.: How a U.S. Company Props Up the House of Saud.")
-- Pratap Chatterjee is with CorpWatch and wrote the article "Vinnell Corporation: "'We Train People to Pull Triggers.'"
"(Vinnell) has been controlled in the past through a web of interlocking ownership by a partnership that included James A. Baker III and Frank Carlucci, former U.S. secretaries of state and defense under presidents George (H.W.) Bush and Ronald Reagan respectively. ... In an interview with Newsweek, a former U.S. Army officer who now works for Vinnell described the company's first recruitment as putting together 'a ragtag army of Vietnam veterans for a paradoxical mission: to train Saudi Arabian troops to defend the very oil fields that Henry Kissinger recently warned the U.S. might one day have to invade.' The article quoted another Vinnell employee, also a former U.S. army officer, as saying: 'We are not mercenaries because we are not pulling triggers. ... We train people to pull triggers.'"