Via TAPPED and a host of other sites: the Washington Post published a piece yesterday on the Bush administration's current thinking about tax reform. The good news is that it does not seem that they'll go for a flat tax or a sales tax. The bad news is what they're proposing instead:
Pamela F. Olson, a former Bush Treasury official in close contact with administration tax planners, said the president will pursue a tax system where all income -- whether from wages, dividends, capital gains or interest -- is taxed only once. That would mean eliminating taxes on dividends and capital gains paid out of fully taxed corporate profits. Most investment gains are currently taxed at 15 percent.The administration will also push hard for large savings accounts that could shelter thousands of dollars of deposits each year from taxation on investment gains, according to White House economic advisers who have been involved with the planning. And any tax reform, according to Treasury Department officials, would likely eliminate the alternative minimum tax, a parallel income tax designed to ensure that the rich pay income taxes but one that increasingly ensnares the middle class.
To pay for those large tax cuts, the administration is looking at eliminating both the deduction for state and local taxes, and the business tax deduction for employer-sponsored health insurance. That would raise nearly $926 billion over five years, according to White House and congressional documents."
There are three main things wrong with this proposal. First, there's the incredible idea of eliminating the business tax break on health insurance. The effect of this would be to raise taxes on those businesses that provide health insurance to their employees, thereby making it much less desirable to do so, and forcing those companies who are now barely able to afford health insurance for their employees to stop providing it. I can see eliminating this tax break in the context of a drastic overhaul of our current system of providing health insurance -- if we moved to a single-payer system, for instance, and employers provided not basic health insurance but some sort of special extra coverage to their employees, then it might be a good idea. But it is emphatically not a good idea now, in a system in which most people's basic health insurance is provided by their employer, to make it much more costly for employers to provide it. I cannot imagine why this would strike anyone as a good thing to do to our tax system.
Second, as far as I can tell, all the tax hikes disproportionately affect the poor and the middle class; that is, precisely the people who have benefitted least from the previous tax cuts, and who have the least to spare.
Third, all the tax cuts benefit primarily the wealthy. It is the wealthy who benefit the most from dividends and capital gains, as opposed to such archaic forms of income as wages. It is the wealthy who would benefit from increases in the limits on contributions to tax-free accounts: most people can't afford to contribute at the maximum limits currently allowed, let alone the higher limits this proposal seems to envisage. Even in the case of reforming the Alternative Minimum Tax, which is ostensibly designed to help the middle class, the administration has chosen a proposal that benefits the wealthy. The AMT was designed to make sure that the wealthy pay something every year; because it kicks in at a level that was not indexed to inflation, it is affecting increasing numbers of the upper middle class. The most obvious solution to this problem would be to raise the level at which the AMT kicks in and index it to inflation, so that it would affect only the wealthy. But the Bush administration proposes to eliminate it altogether.
This country is running a huge and unsustainable deficit. We cannot afford further tax cuts for the rich. Moreover, this administration has already slashed their taxes. There is no earthly reason to cut them further, especially if in order to do so we have to eliminate the business deduction for employer-sponsored health insurance. This tax proposal would cause a lot of working people to lose their health insurance in order to enable the wealthy to shield even more of their income from taxation. It is absolutely unfair, and we should oppose it.
To forestall one line of criticism: I am not anti-rich people. I would benefit from these tax cuts. My employer is unlikely to cut my health insurance, and I have dividend income. Lucky me. I just don't think that people like, for instance, me deserve another tax cut when our country cannot afford it, and when the price is someone who is working hard to get by losing his or her health insurance. That's just not right.
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