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Thursday, Nov 26, 2009
Social Security
Bush's vision of a so-called ownership society is code language for dismantling not only Medicare, but also the existing Social Security system and replacing it with a system by which individuals' contributions go into personal accounts. Even Bush's handpicked commission got nowhere on solving the huge problem of financing the transition from the current pay-as-you-go system to Bush's privatization scheme. Perhaps Bush will continue simply presenting his vision as an unfunded mirage. Or, in order to provide some actual funding for the change, a Bush victory would be the context in which to unveil a new tax that hits people harder the less they have, like a value-added tax that works like a sales tax but is not separated out and visible. Either way, Republicans could pitch to younger and better-paid workers who see no personal payoff right now in their paycheck deduction for Social Security.
Ordinarily, proposing a new federal tax akin to a national sales tax would involve too much risk for Republicans. However, the risk might drop if it were introduced as a way to end Social Security taxes, at least in part. As with Bush's tax cuts and the 2003 Medicare act, a long rosy-hued public phase of talking up the wonders of the proposal would get it through the House and Senate into a conference committee. Under cover of political darkness, this conference committee would produce quietly and in hard-to-decipher form the actual law that transfers funds on a broad scale from the have-nots to the haves.
In any event, through this plan, whether or not it's funded by something like a national sales tax, Bush would make a play to split younger from older Democrats. As with Medicare, he would shred the concept of a social safety net for all -- a unified protection for the national community. In election campaigns, Democrats, for trying to hold that unified protection together, would be depicted as -- no surprise here -- simple-minded excessive taxers, this time as to the payroll taxes.
Taxes
Democrats may look at the Republican platform's call for more tax cuts and assume it just means an effort to extend in time the tax cuts of 2001 and 2003. That alone would be painful enough for Democrats and for the country. The Congressional Budget Office recently confirmed that a third of President Bush's tax cuts have gone to the top 1 percent of income. And the CBO estimates show that of the $10 trillion of newly piled-on debt anticipated from Bush's actions from 2002 to 2014, Bush's tax cuts (including their renewal) would amount to $5.5 trillion -- an enormous debt burden that will fall primarily on the middle class.
However, digging a little deeper, Bush's proposals carry a stealth plan to pit middle-class and worse-off Democrats against each other. Nina Olson, the Internal Revenue Service's national taxpayer advocate, gave a largely overlooked taste of this on June 23 in Chicago at the National Community Tax Coalition's conference of advocates for low-income taxpayers.
Olson warned the group that the earned income tax credit (EITC), the tax code provision that aids the working poor, could fall under the knife that tax writers will wield in coming years. Until now, even Bush, with his zeal to play reverse Robin Hood, has not dared to openly propose assailing the popular and efficient EITC. Olson points to the EITC's vulnerability in the context of an impending crisis arising from the alternative minimum tax (AMT), the additional income tax that kicks in principally for those who take certain specific deductions. "Unless you get attuned to the conversation of how the tax system is going to deal with the AMT, you will be left in the dirt," she said.
The AMT taxes incomes at a flat rate of 26 or 28 percent, and omits certain key deductions allowed from the regular income tax, notably state and local income taxes. Unlike the regular income tax brackets, which are indexed for inflation, the AMT's thresholds are not. So, the AMT will kick in at levels that stay the same despite inflation -- levels that look increasingly middle-class for those who have sizeable deductions for state and local income taxes -- while the high-rate income tax brackets kick in only at higher income levels due to tax cuts and inflation. This means that, absent relief, in a few years the AMT will impose scores of billions of dollars in taxes that the middle class would have been spared from paying as regular income taxes.
