September 19, 2005
NEW TAX CUTS PRIMARILY BENEFITING MILLIONAIRES SLATED TO TAKE EFFECT IN JANUARY:
Should They be Implemented While Katrina Costs Mount?
By Robert Greenstein, Joel Friedman, and Isaac Shapiro
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Budget Priorities After Hurricane Katrina
Federal Tax Policy
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Summary
Even before Hurricane Katrina, large deficits were projected far into the future, with the nation’s debt burden ultimately swelling to unsustainable levels. The relief and recovery from Hurricane Katrina is estimated to cost $100 billion to $200 billion, adding to the nation’s mounting debt. Debate has now begun about whether in the face of these costs and the grim long-term fiscal outlook, some belt-tightening and “shared sacrifice” are in order.
The budget reconciliation bills that Congress is slated to consider this fall will not help. Taken together, the two bills will increase deficits by more than $35 billion over five years. Under these bills, $35 billion in cuts in programs such as Medicaid and food stamps will be used not to reduce the deficit, but to offset a portion of the $70 billion that the reconciliation tax-cut bill will cost.
On September 16, President Bush said further budget cuts will be needed. The Administration presumably intends these cuts to come primarily in domestic programs. One obvious step, however, is being overlooked: Two tax cuts enacted in 2001 that are not yet in effect — and will only start taking effect on January 1 — could be reconsidered as a way of helping to defray some of the costs of Katrina relief and recovery. These two tax cuts will benefit only high-income households (primarily millionaires), will do little for the economy beyond further increasing the deficit, and were not even requested by President Bush in the first place. (They were added by Congress.)
The highly respected Urban Institute-Brookings Institution Tax Policy Center reports that households with incomes of more than $1 million a year — the richest 0.2 percent of the U.S. population — already are receiving tax cuts averaging $103,000 this year, before these two new tax cuts take effect. The Tax Policy Center finds that the two tax-cut measures in question will give these “millionaires” nearly another $20,000 a year in tax cuts, when the measures are phased in fully.
This raises the question of whether the nation should proceed with these tax cuts at a time when many Katrina survivors remain in difficult straits, when huge sums are being discussed for Katrina relief and recovery, and when cuts in domestic programs — including programs for the poor — are slated for Congressional consideration this fall as part of the reconciliation bills.
President Clinton on the Today Show, September 16, 2005
Matt Lauer: What sacrifices would you ask the American people to make to pay those [hurricane relief and Iraq war] bills?
President Clinton: I would repeal the tax cuts for upper-income people. I myself have gotten 4 tax cuts while young Americans have gone off to risk their lives in Iraq and Afghanistan, while we've had this massive natural disaster. We've run up this huge deficit. How are we covering this money? We are borrowing the money from China, Japan, Korea, Saudi Arabia to pay for the suffering of our people in the Gulf area, to pay for the Iraq War, and to cover my tax cuts — and we are expecting our children to pay the bill. We've made a decision to lower the living standards of our children and grandchildren and to soak other people around the world who don't have the money we do, by and large, to cover our self-indulgence.
