Clicking on banner ads enables JWR to constantly improve
Jewish World Review June 1, 2001 / 10 Sivan, 5761

Amity Shlaes

Amity Shlaes
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Ann Coulter
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
James Glassman
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
David Limbaugh
Michelle Malkin
Jackie Mason
Chris Matthews
Michael Medved
Kathleen Parker
Wes Pruden
Sam Schulman
Roger Simon
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports

Loving and hating the Bush tax bill -- The new tax legislation in the US is supposed to be about economics but it is also proving useful as a political Rorschach test.

There is fodder in the 400-plus page document for the groups who set out to criticise the bill: voters and lawmakers who had hoped it would be more ambitious; and those who oppose it in the name of high-minded causes such as "fairness" or "preserving the federal surplus".

But there is also ample material in the legislation for onlookers to cheer.

First, the downside and its publicisers. The schedule for implementation is extremely slow. Estate taxes and much-hated "stealth taxes" are scheduled to disappear, but only nine years hence. The phase-in of the all-important cuts to graduated rates is also untenably slow. In the coming year, for example, taxpayers can expect to see the statutory top marginal rate of income tax go down a measly one percentage point, to 38.6 per cent from 39.6 per cent. Other rates likewise drop a mere point. Only by 2006 will the new "final" top rate of 35 per cent become effective.

The ultimate cut to an official 35 per cent gives ammunition to members of the "fairness" camp, who claim the regime cedes too much to the rich. This, for example, is what Senator John McCain argued when he announced that he would be one of two Republicans to oppose the bill. Specifically, he lamented the bill's failure to "to make room for more tax relief for lower-income Americans".

On the Democratic side, opponents lambasted the legislation as too general. Senator Chuck Schumer of New York attacked an early version, saying that the White House ought to concentrate on "the need to make college affordable for American families", instead.

But the legislation also fails to satisfy the more radical among the tax cutters. Some point out that it fails to restore the top rate to the level that obtained under Mr Bush's father. Others allege that it is far more likely that Mr Bush will be replaced by a Democrat than it is that voters will ever see implementation of their 35 per cent. In fickle America this, alas, has the ring of truth.

Another bugaboo, the so-called Alternative Minimum Tax problem, has also attracted the attention of critics. Tax bill opponents, many of them self-proclaimed fiscal conservatives, note correctly that the lower rates in the new legislation may inadvertently force millions more taxpayers into the famous penalty box tax regime. They charge the Bush administration, which went out its way to present the tax legislation as pro-middle class, with hypocrisy.

These critics are correct in saying that an ideal Bush tax cut would do away with the dreaded AMT. What they fail to highlight is the reason that the Grand Old Party could not kill the AMT in this legislative round. Budget rules aimed at keeping the deficit small and supported by these self-same fiscal conservatives make slaying the AMT beastie "too expensive".

Yet there is also plenty in the new law to love for those who would look for it. One of the worst features of the 1990s has been the trend toward stealth taxes, which, as in Britain, infuriate the electorate. In the case of higher earners two such hidden taxes have proven particularly painful. The first is the phase-out of the personal exemption, an event that raises the effective top marginal rate. The second is a limit on itemised deductions, which likewise raises the rate above its official 39.6 per cent. The new legislation, as noted above, does away with these too late. Nonetheless, the fact that it even tries reflects a commitment to a more honest tax code.

But the main good news, at least to the glass-half-full crowd, is the direction of the tax legislation. For the first time since the early 1980s lawmakers, including some Democrats, have voted to reduce the size of the government, and by more than $1,000bn. The effort is a salutary one, at least for those who believe that the US succeeds when the public sector becomes smaller relative to the private sector and not the other way around.

Finally, it is interesting to note that the new legislation's opponents, while alleging injustice or inconsistency on the part of the administration, are not being entirely consistent themselves. The same Senator Schumer who has railed about giveaways to the rich also recently backed a cut in what is often referred to as the ultimate plutocrat levy, the capital gains tax.

As for Senator McCain and his "fairness" objection to the tax bill, it was only 14 months ago that the self-proclaimed Mr Character was selling himself as a flat taxer on the presidential campaign trail - in other words, a fellow who might support legislation more "pro-rich" than anything in the Bush bill.

JWR contributor Amity Shlaes is a columnist for Financial Times . Her latest book is The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It. Send your comments by clicking here.


05/30/01: Will Grisham soon be unemployed? In America's courts these days, there's no room left over for legal fiction
05/22/01: Republicans sample the rhetoric of confidence
05/16/01: Boeing has been promised $60m to site its headquarters in Illinois. The deal looks a poor one for taxpayers
05/14/01: Adam Smith in love
05/09/01: Those rotten Russian capitalists
05/07/01: Why tax havens provide shelter for everyone
05/04/01: Middle classes pay for get-the-rich folly
05/01/01: Money can't buy happiness? Think again.
04/26/01: Calling America's rogues and entrepreneurs
04/19/01: High earners right to feel lonely at the top
04/11/01: The right must learn the comfort of strangers
04/04/01: When domestic law arrives by the back door
03/30/01: A Lexus tax cut suits the jalopy driver
03/27/01: The unchallenged dominance of King Dollar
03/20/01: Natural selection of an intellectual aristocracy
03/16/01: The hidden danger of a regulatory recession
03/14/01: Is the American condition that boring? Why so many Oscar nominated movies aren't set in America
03/07/01: Trampling on the theory of path dependence
03/05/01: Fighting the good fight
03/01/01: It is time for Fannie and Freddie to grow up
02/27/01: IT's important
02/22/01: The guilty conscience of America's millionaires
02/14/01: The benefits of helping the 'rich'
02/09/01: The Danger and Promise of the Bush Schools Plan
02/05/01: Crack and Compassion
01/31/01: Debt is good
01/29/01: Clueless
01/24/01: A gloomy end for a half-hearted undertaking
01/17/01: The challenge of an ally with its own mind
01/15/01: An unexpected American family portrait
01/10/01: A fitting legacy for America's beloved dictator
01/08/01: The trick of tax 'convenience'
01/03/01: Time to stop blaming Greenspan over taxes
12/11/00: So smart they're dumb
12/06/00: How economic bad news came good for Bush
12/04/00: The Boies factor
11/30/00: "The inevitable demands for recounts erupted like acne…"
11/28/00: Fair play and the rules of the electoral game
11/23/00: The shining prospect beyond a cloudy election
11/21/00: Try the Cleveland model
11/16/00: A surprising winner emerges in the US election
11/09/00: Those powerful expats
11/07/00: What's right for America versus what works
11/02/00: Time to turn off big government's autopilot
10/30/00: Canada beating America in financial sensibility
10/26/00: When progressiveness leads to backwardness
10/24/00: The most accurate poll
10/19/00: The Middle East tells us the hawks were right
10/17/00: The split personalities of America's super rich
10/10/00: 'Equity Rights' or Wake up and Smell the Starbucks
10/04/00: Trapped in the basement of global capitalism
09/21/00: The final act of a grand presidential tragedy
09/21/00: Europeans strike back at the fuel tax monster. Should Americans follow?
09/18/00: First steps to success
09/13/00: America rejects the human rights transplant
09/07/00: Minimum wage, maximum cost
09/05/00: Prudent Al Gore plans some serious spending
08/31/00: A revolution fails to bring power to the people
08/28/00: A reali$tic poll
08/21/00: "I Goofed"
08/16/00: Part of the union, but not part of the party
08/09/00: Silicon Alley Secrets
08/02/00: Radical Republicans warm up for Philadelphia
07/31/00: I'll Cry if I Want To
07/27/00: Cold warrior of the new world
07/25/00: The Estate Tax will drop dead
07/18/00: Shooting down the anti-missile defence myths
07/14/00: A convenient punchbag for America's leaders
07/07/00: How to destroy the pharmaceutical industry
07/05/00: Patriots and bleeding hearts
06/30/00: Candidates beware: New Washington consensus on robust growth stands the old wisdom on its head
06/28/00: White America's flight to educational quality
06/26/00: How Hillary inspired the feminist infobabes

© 2001, Financial Times