On one level, Bush more than kept his word to voters. He said he would give a big tax cut, and lo and behold, he did. While the official price tag is $1.35 trillion over 10 years-less than the $1.6 trillion he outlined-unofficial estimates put the real tax cut at $1.8 trillion-or more. Although it has been clear for some weeks that Bush would get this win, it’s a big one. And a promise fulfilled.
But during the campaign, Bush was rather specific about the kind of tax cut he wanted. He promised to “knock down the tollbooths to the middle class”-the barriers that prevent the working poor from getting a leg up. The extra $600 for all married couples that begins this year ($300 for individual taxpayers) will be welcome cash but hardly enough to transform anyone’s life. The biggest winners from the bill are the wealthy and those already in the middle class with some money to put aside for private school and college.
Eliminating the “death tax,” as critics call the inheritance tax, was another major feature of Bush’s stump speech. This promise will be partly kept-but with a strange twist. Next year, the exemption from inheritance taxes will rise from the first $600,000 in an estate in current law to $1 million (something Congress had previously scheduled). It then goes up gradually to $5 million before the tax is entirely eliminated in 2010. That’s when the big payoff comes for the superrich-no taxes at all on their vast estates, thus no need to set up charitable foundations. (This notwithstanding the fact that Bill Gates Sr., with the private support of his son, and Warren Buffett were the leading opponents of this provision).
But then, in a legislative sleight of hand, the whole thing is scheduled to go poof in 2011, the point being to keep the overall cost of the tax cut looking lower than it really is. As economist Paul Krugman explained in The New York Times, if a multimillionaire dies on Dec. 31, 2010, his heirs pay nothing in tax. If he dies a day later, on Jan. 1, 2011, his heirs would pay more than half to the government. Krugman calls this the “Throw Momma from the Train” provision of the new law, though “Throw Momma from the Lear Jet” may be more like it.
There was one other tax promise that Bush never failed to make on the stump. To stress his commitment to “compassionate conservatism,” Bush promised that, if elected, his tax bill would allow those who don’t itemize their tax returns to take a deduction for charitable contributions. This was a crowd-pleasing proposal and a fair one-why should the small minority of those affluent enough to itemize be the only ones who got a tax break for giving to charity? The provision was estimated to add $15 billion a year to charitable giving (less-affluent folks are famously generous and would be more so with a tax break). This was especially important given that the elimination of the inheritance tax is estimated to cost charitable organizations about $6 billion annually. (People give to charity in their estates partly out of genuine altruism and partly to avoid giving it to the tax collector).
As recently as May 20, Bush told his audience at Notre Dame’s commencement that this new tax break for charitable giving was a central element of his tax plan. But six days later, House-Senate conferees, working out the final details of the tax bill, deleted the provision. The White House agreed to the deletion to keep the bill moving toward the president’s desk. If you combine the loss to charity from the inheritance-tax provisions and the deletion of the deductions for nonitemizers, the total is $90 billion over 10 years. That’s a huge chunk of change that won’t go to people in need.
There is a small silver lining. Tax bills are like the weather-they blow hot and cold. That’s what the House Ways and Means Committee and the Senate Finance Committee do full-time-mess with the tax code. Because so many of the provisions, especially those tilted toward the wealthy, don’t kick in until late in this decade, there’s plenty of time for Congress to tinker. Will it? That depends less on this year’s tax cut than on the cut and thrust of American politics in the years ahead.
