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Tax cuts a boon to upscale loafers
by Tom Blackburn
Entered into the database on Monday, July 17th, 2006 @ 19:42:27 MST


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Is the economic glass half-full or half-empty? Or is the glass broken?

President Bush gave his answer last week: "Tax relief is working, the economy is growing, revenues are up, the deficits are down, and all across this great land Americans are realizing their dreams and building better futures for their families."

Americans gave a different answer last month. More than half, 54 percent, told the Pew Research Center that they disapproved of the president's handling of the economy. Only one-third liked how he's doing.

On Tuesday's presidential excursion, Mr. Bush visited an American manufacturer still in business with whom he could share his optimism: Allen-Edmonds in Milwaukee, which makes upscale men's shoes. The theme of the day was that the White House now figures that this year's federal budget deficit won't be as bad as it had predicted. Early this year, the White House had said $423 billion. It now says $296 billion.

"Today is a good day for the American taxpayer," Mr. Bush said.

All of the above can be true. The growth rate has been a respectable 4 percent for three years. That raises the question, though, of why the federal budget doesn't balance. The promised $296 billion would be the fourth-highest deficit in history. The other three also came from Mr. Bush, despite good growth.

If a budget doesn't balance with 4 percent growth, somebody is doing something wrong. Deficits that persist after four years of growth show that tax cuts are not "paying for themselves." If they were, the budget would be back in surplus.

Another point: The reduction in the deficit projection isn't as huge as Mr. Bush makes it seem. When the White House first estimated a $422 billion deficit, the usually more accurate Congressional Budget Office was estimating $314 billion. Could the White House have been stacking the deck when it made that estimate of $412 billion last August? Might it have been looking ahead to "discovering" that the deficit is way below expectations when the fiscal year ends in October, just before the November elections? Nah.

The 54 percent who said they don't like Mr. Bush's handling of the economy may have just come home from paying $2.98 a gallon for gasoline. Or maybe they were asked on the day they saw that not even the lowly dish cloth is made in the United States anymore.

The one-third of Americans who are satisfied with Mr. Bush's stewardship may be buyers of those Allen-Edmonds shoes. In the shoemaker's online catalog, tasseled loafers like those said to be favored by lobbyists go for $295.

As the president's ideological backers never tire of saying, the rich pay most of the income tax. The top 20 percent income bracket should include Allen-Edmonds' customers. It varies a little from year to year, but the top 20 percent accounted for 63 percent of the income-tax revenues in 2004, according to the Congressional Budget Office. Everyone else - the other 80 percent - paid more in withholding taxes than income tax. The lowest 60 percent provided just over 16 percent of the income tax revenue.

So, then, how did that projected budget deficit close by more than $100 billion in nine months? (The budget year runs from October through September.) The rich got a lot richer, that's how. They had to get a whole lot richer to generate taxes to make up for the tax cuts, and then some. That's how Mr. Bush predicted that his cuts would work.

The implication was they would work for everybody. They work that way, however, only for the people who pay most of the income taxes.

Everyone pays the withholding tax and the sales and property taxes that support state and local governments - the taxes that weren't cut - and $2.98 gasoline. But most aren't enjoying the soaring incomes. As the president and Congress fight about the income tax, their argument is about the tax that matters the most to the minority. The debate isn't about what aggravates the majority. The debate goes on above most people's pay grade.

Can a country flourish on a tax system that caters to its wealthiest 20 percent but relies on them to support the federal (but not state and local) government? Who knows? But that's what we've been trying to do.

In theory, it probably can work if the richest 20 percent wish to cover nearly all the costs of government. But that lingering $296 billion deficit is a hole in the theory.


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