ECONOMY

Another Tax Day, Still No Comprehensive Reform With tax day three days away, President Bush has stepped up his calls to make permanent his tax cuts and right-wing advocacy groups have aggressively promoted a repeal of the estate tax. But so far, conservatives' efforts have been limited to rhetoric and infighting. In 2005, Bush promised to "to give this nation a tax code that is pro-growth, easy to understand, and fair to all." Yet he has ignored the Sept. 2005 recommendations of his bipartisan task force on tax policy, and last week Congress "abandoned [its] efforts" at tax reform and left for a two-week vacation. Conservative congressional leaders have promised to pick up the issue when they return, but their proposals would largely benefit only the wealthiest Americans.

THE PARIS HILTON TAX CUT: Many conservatives try to portray the estate tax as a "death tax" on small, family-owned businesses. "It's just about penalizing success, and that's why it's unfair and wrong," notes the Free Enterprise Fund (FEF). But in reality, the estate tax is a progressive inheritance tax, affecting only the heirs to the wealthiest Americans. Americans are about four times as likely to be hit by lightning than to have to pay estate taxes on small businesses or farms. As columnist E.J. Dionne notes, "Fewer than 1 percent of the people who died in 2004 paid an estate tax, and half the revenue from the tax came from estates valued at $10 million or more." By 2009, only families worth more than $7 million -- fewer than three in every one thousand estates -- will pay even a penny in estate taxes, and for those who will pay anything, the first $7 million will be tax free. Conservatives in the House and Senate are proposing to permanently repeal the estate tax -- or seek a "compromise" that is nearly as bad -- even though such a move would cost over three quarters of a trillion dollars in the next decade. The right wing is also ignoring the priorities of the American public. A new poll finds that 57 percent favor reforming or leaving alone the estate tax; only 23 percent back repealing it.

THE UNEARNED INCOME TAX CUT: A centerpiece of Bush's tax cuts was a 15 percent tax rate for capital gains and dividends. Those cuts are set to expire in 2008, when capital gains taxes would be taxed 20 percent and dividends would be taxed as regular income. Conservatives in Congress are seeking to extend the 15 percent rate. It would be a costly move that would bestow the vast majority of benefits to the well-off. According to the Tax Policy Center, nearly three quarters of the benefits of these tax cuts will go those earning over $200,000 and nearly half to those earning more than $1 million each year. Despite administration claims to the contrary, Federal Reserve economists have found these investment tax cuts haven't boosted the stock market and the non-partisan Joint Committee on Taxation has found that any economic benefits of the cuts would "eventually likely to be outweighed by the reduction in national savings due to increasing Federal government deficits."

THE BALLOONING ALTERNATIVE MINIMUM TAX: The Alternative Minimum Tax (AMT) was originally conceived of as "a trap for wealthy tax dodgers." But the rate was never indexed to inflation and is now taxing the middle class. This year at least 19 million taxpayers, making as little as about $30,000, will be hit by the AMT. The AMT currently has few supporters, yet the conservative Congress was unable to put aside its infighting and left for recess without reforming the tax. The Senate's AMT provision would have ensured that taxpayers who did not pay the AMT in 2005 would not to pay it in 2006, increasing exemption amounts to $42,500 for single taxpayers and $62,550 for couples. The House is pushing for the Senate to pass its stand-alone AMT relief bill, but Sen. Charles Grassley (R-IA) has said the bill will need to have both AMT reform and cuts on capital gains and dividend taxes to win support in the Senate. Sen. Max Baucus (D-MT) disagrees: "The truth is we cannot have it all. Capital gains can wait. But AMT cannot wait." In the long-run, AMT reform must be coupled with broader tax reform to ensure that the wealthiest pay their fair share.

A FAILURE TO DELIVER: Bush's tax cuts have "failed to produce the burst of economic activity the president promised." A report by the Center for American Progress and the Economic Policy Institute shows that Gross Domestic Product "grew only 13.5% since the first round of tax cuts were passed in early 2001, averaging 2.7% per year. The average for similar periods in the past was far better -- growing 16.3% or 3.2% per year." In fact, since the 2003 tax cuts, job growth has been weaker than during any comparable period following a recession -- about half the historical average. This year's projected deficit is already enormous -- $423 billion -- but the President's tax cuts are yet to take full effect. When they do, they will add $400 billion a year to the national debt. John Irons, American Progress Director of Tax and Budget Policy, notes, "The tax code needs to raise more revenue than it does now. ... Not only do we have massive deficits now, but the situation will only get worse as baby boomers retire and as medical costs increase our obligations under Medicare and other programs. A failure to increase revenue means a failure to invest in our nation, our economy, and our kids." American Progress has a plan