Why the Bush Plan is the Wrong Plan for US

This chart compares the Bush plan to the Democratic plans: the Baucus and Pelosi economic stimulus plans. To see what goes into a good economic stimulus plan, see this chart

This chart compares the Bush plan to the Democratic plans: the Baucus and Pelosi economic stimulus plans. To see what goes into a good economic stimulus plan, see this chart

This chart compares the Bush plan to the Democratic plans: the Baucus and Pelosi economic stimulus plans. To see what goes into a good economic stimulus plan, see this chart

A Closer Look at Selected Current Proposals
Cost in Billions of Dollars: 1-Year (2003) Cost/10-Year (2003-13) Cost

  Bush Plan ($102/$674) Baucus Plan ($160/$135) Pelosi Plan ($136/$100)
State Relief * None -- except grants to states to implement "Personal Re-employment Accounts" * One-time general revenue sharing to states ($75/$75)

* Sell $4 billion in tax credit bonds for deposit in Highway Trust Fund to be sent to states for use in FY '03 ($4.3/$6.8)
* One-time state Homeland Security grants ($10/$10)

* Add to highway funding and allow postponement of state matching share ($5/$5)

* One-time increase in Medicaid share grants ($10/$10)

* One-time critical needs grants ($6/$6)
Total Cost, State Relief: N/A $79.3/$81.8 $31/$31
Unemployment * Provide unemployed workers with $3,000 "Personal Re-employment Accounts" (for job training, child care, transportation, moving costs, etc.). Leftover funds could be kept by recipients who become employed within 13 weeks ($3.6/$3.6) * Retroactive 13-week extension for those whose benefits extension ended December 28 and an additional 13-week extension

* Soft cut off

* Temporary provision of benefits to part-time workers and others not currently eligible ($17/$12 i)
* Retroactive 26-week extension

* Temporary aid to the states to broaden coverage to low-wage and part-time workers.
Total Cost, Unemployment Assistance: $3.6/$3.6 $17/$12 i $18/$10
Individual Tax Cuts * Permanent elimination of tax on stock dividends paid to individuals ($20/$364)

* Accelerate 2004 and 2006 tax rate reductions -- make retroactive to January 1, 2003 ($29/$64)

* Accelerate the 2009 marriage "penalty" reduction to this year ($19/$58)

* Accelerate the child tax credit from $400 to $1000 this year instead of 2010 ($16/$91)

* Accelerate the 10% income tax bracket expansion to this year instead of 2008 ($5/$48)

* Fix Alternative Minimum Tax (AMT) penalties caused by new tax rates ($8/$29)
Eliminate income tax on first $3,000 of wages in 2003. 10% rebate on $3,000 for low-income workers ($45/$45) * Refundable income tax rebate ($300 for individuals;$600 for joint filers) to everyone who works ($55/$58)
Total Cost, Individual Tax Cuts: $97/$654

(Since tax payers won’t receive much of the benefit of these tax cuts until 2004, the actual infusion of cash into the economy is only $59 billion in 2003 – about half of what these tax cuts will cost over the next 18 months.)
$45/$45 $55/$58
Business Tax Cuts * Permanent expensing of up to $75,000 on equipment purchases, indexed to inflation ($2/$16) * Expensing of up to $75,000 on equipment investment in 2003 only ($2/$1 ii)

* Bonus depreciation of o 40% until September 2004 ($14/$4)

* Tax credit for employers of up to 50% of health insurance cost paid by employer ($3/$4)

* Expensing of $50,000 of cost of new equipment investment in 2003 only (cost included with bonus depreciation, below)

* Bonus depreciation of 50% in 2003, declining to 10% in 2004 ($32/$1)
Total Cost, Business Tax Cuts: $2/$16 $19/$9 $32/$1
Corporate Governance N/A * Adding to the Tax Shelter Transparency Act N/A
Total Cost, Corporate Governance: N/A +$13 iii N/A
Budget Rules N/A * Extend 60-vote point of order through 2004 N/A

Why is the Bush plan so bad?

  1. The Bush plan provides only a little fiscal relief in 2003 and will cost at least $700 billion over the next ten years.
    • It provides only $59 billion of fiscal relief in FY 2003 mostly through tax cuts, while most economists agree that a substantial boost in immediate spending is needed. We need an immediate infusion of money to create jobs and improve the economy.

    • It is not a stimulus bill, but a thinly veiled disguise for more expensive tax cuts that we can’t afford, on top of the tax cuts passed in the summer of 2001. We don’t need more tax cuts, we need an economic stimulus that will benefit all Americans. The plan fails to meet any of the bipartisan principles identified as necessary for an economic stimulus package. Read more about these principles and how the Bush plan misses the mark.

    • It gives the majority of its tax breaks to wealthier Americans, not to low- and middle-income Americans who will spend the savings and stimulate the economy. Tax cuts to the wealthy will not have a trickle down effect on the economy, but a “trickle upon” effect on ordinary low- and middle-income Americans. Ordinary taxpayers (those making less than $1 million a year) will only get a few hundred dollars at the same time as they see big cuts in federal and state services upon which they depend. For more about distributional effects see the Citizens for Tax Justice analysis and the Tax Policy Center charts.

    • It reduces federal revenues over the next decade (from 2003 to 2013) by an alarming $674 billion (not even counting the increased interest costs, which, according to the Center on Budget and Policy Priorities, would bring the total 10-year cost to more than $900 billion), at a time when the federal budget is already expected to run deficits for years, and many more resources are being spent and will continue to be spent on homeland security efforts and war preparation. This reduction is due to permanent tax cuts, including the elimination of the tax on corporate dividends and a higher expensing limit for purchase of equipment by corporations; as well as acceleration in the phasing in of the previously passed tax cuts.

    • Besides the revenue reduction, most of the Bush plan consists of tax cuts that will grow through the years, eating up more and more federal revenue.

  2. The Bush tax plan doesn’t give a penny to states who are experiencing the worst fiscal crisis in years, and will actually worsen the state revenue situation.
    • It provides not one cent to struggling states. Thus, states will be busy cutting services and possibly raising taxes, acting against any federal efforts to stimulate the economy by increasing spending. States will be cutting services at a time when they are needed more than ever, because of high unemployment and the economic downturn forcing many more Americans to struggle to make ends meet.

    • Besides the glaring lack of any assistance to the states, the Bush plan actually will further reduce state and local revenue primarily because of the permanent elimination of the tax on corporate dividends paid to individuals. Since state taxes on these dividends are linked to the federal tax, states will lose that revenue. In addition, individuals will be less likely to buy municipal bonds because of the tax break they can receive through corporate stocks, which will further reduce state and local revenue. States and localities will need to increase interest on their bonds to make them attractive to buyers, costing states and localities even more. The estimated loss to states is $4 to $5 billion a year. For more about state losses see the Center on Budget and Policy Priorities report.

  3. The tax provisions of the bush plan are poorly designed and do not increase fairness, consistency, or simplicity in the tax code.
    • Since the original Bush tax cut will expire after 2010, all of the accelerated tax breaks (in individual rates, marriage penalty, child care tax credit, and expansion of the 10% rate) remain uncertain. There will be strong efforts to make all of these cuts permanent, as well as other provisions like the estate tax, to avoid an “increase” in taxes beginning in 2011, in spite of the fact that the costs for the next decade will be a whopping $4 trillion. (See the CBPP report.) The likely result? More short-term extensions, confusion and inefficiency in the tax code. There has been no reasoned effort to look at the tax code and make considered decisions given the deficit situation and increased resource needs to insure that we have the necessary federal revenue over the next decades. The Bush tax “plan” is just a bunch of tax cuts for higher income Americans.

    • Eliminating the tax on corporate dividends will add enormous complexity to the tax system and will likely foster fraud. Shareholders will be untaxed only if corporations have paid tax on profits that are issued as dividends. Since many corporations are adept at avoiding taxes on their profits, many individuals’ dividends will remain taxed.

  4. Elimination of the tax on corporate dividends, the most expensive part of the Bush plan, will not stimulate the economy, but will worsen the state fiscal crisis and will eat up almost $400 billion of federal resources over the next ten years.
    • Since many companies currently do not offer dividends to their investors, there will probably be an increase in dividend offers to make investment in the company more attractive. This could actually reduce company resources for reinvestment in equipment and expansion of the company, producing a slowing effect on the economy.

    • Dividends are not “double taxed.” A company pays taxes on its profits. An individual investor pays taxes on dividends received. This is normal tax policy. For instance, a company pays taxes on the materials required to make its products. That company is taxed on the profits it makes for selling its products. The consumer pays a sales tax when buying the product. Neither the company nor the shareholder pays a “double” tax on corporate dividends.

    • Any stimulative effect from the elimination of the dividend tax will not be felt until taxpayers file their returns in 2004. For more details on effects of the elimination of the corporate dividend tax see the CBPP analysis.

    • Eliminating the tax on corporate dividends will not be an effective stimulus. According to a Congressional Research Report, “using dividend tax reductions to stimulate the economy is unlikely to be very effective.” (Gregg A. Esenwein and Jane G. Gravelle, “The Taxation of Dividend Income: An Overview and Economic Analysis of the Issues,: Congressional Research Service, October 7, 2002.)

President Bush’s plan fails to meet any of the bipartisan principles of an effective stimulus plan. These principles were agreed upon during last year’s stimulus debate and have been identified by economists as being necessary for any effective stimulus package:

  • It is not timed to result in an immediate stimulus within the next year to year and a half. Rather, the bulk of the expense falls during the next nine years, with only a $102 billion infusion this year.

  • It is primarily one more big tax cut, which will not help to stimulate the economy and will dramatically worsen our long-term budget situation.

  • Elements of the tax cut are permanent (corporate expensing and elimination of tax on dividends). Other elements (acceleration of the phase-in of the previous tax cut) will increase in costs as the years go by and will be difficult to let expire.

  • It is not fair. It will actually make things better for wealthier Americans while not helping low- and moderate-income Americans. At the same time, it will erode federal and state resources that are essential for the services upon which we all depend.

  • It does not target unmet needs. The only benefit provided to the unemployed is the “Personal Re-employment Plans” which provides a one-time $3,000 benefit to unemployed workers to get a job. Apparently, this is supposed to provide an incentive to the worker to hurry up and get a job spending as little as possible of the $3,000, so the rest would be a bonus. However, given the fact that child care and transportation and other expenses of being employed are ongoing, and states will likely be cutting many of the programs that assist low-income workers, it is hard to understand how these re-employed workers will be able to stay that way.

Both the House and Senate Democratic economic stimulus plans provide much needed one-time grants to the states and the extension of unemployment benefits. (Congress passed and the President signed a 13-week extension of unemployment compensation on January 8, 2003.) The major tax cut provisions in both plans target low- and middle-income Americans, providing a one-time rebate. The corporate expensing and depreciation tax cuts are temporary and designed to get companies to purchase equipment and expand immediately. Both plans concentrate on a one-time infusion of resources during 2003, rely on temporary tax cuts that will not worsen our long-term fiscal situation, and are fairer in addressing the real needs of ordinary Americans. Whether or not these plans actually provide an economic stimulus, they will actually help people who need help, and they will not worsen the long-term budget situation.

If dividend taxes aren’t eliminated, what could the country do with $36.4 billion a year?
Sen. Ted Kennedy (D-MA) released a lengthy list of the more pressing, national priorities the federal government could meet with the $36.4 billion per year it would save if it did not eliminate the tax on dividends (elimination of the tax would cost $364 billion over the next 10 years, or approximately $36.4 billion per year for 10 years):

  • Fund a new NIH - with enough left over for two new CDC's.

  • Provide 43 million children with school lunches for an entire year.

  • Fund 107,000 new NIH grants for medical research to develop cures for our most dreaded diseases.

  • Provide all recommended vaccinations to 88 million children

  • Fund adequate nursing staff for 728 150-bed hospitals

  • Provide lifetime medical treatment for 156,000 people suffering from diabetes

  • Provide dinner every day of the year for 50 million senior citizens through the Meals on Wheels program

  • Provide enough funds to run almost every emergency room in America.

  • Provide enough funding to deliver 568,750 healthy babies.

  • Increase Medicaid funding for HIV/AIDS by 9-fold.

  • Treat 3.64 million Americans living with HIV/AIDS.

  • Provide health care for 9.1 million retirees not yet eligible for Medicare.

  • Provide bone marrow transplants for 291,000 children.

  • Provide energy assistance to 29 million families each year, while tripling the average award through LIHEAP.

  • Make our streets safer by putting another 100,000 community police officers on our streets and in our neighborhoods;

  • and fully support state and local first responders in their efforts to prevent and respond to acts of terrorism ($4 billion);

  • and substantially increase our border security personnel and technology;

  • and implement a national AMBER alert system;

  • and double the federal resources currently expended to fight health care fraud;

  • and end the backlogs at state crime labs;

  • and fully fund the Safe and Drug-Free Schools and Communities Program.

Take Action!Modify this letter (or use as is) and email it directly to your Senators and Representative to tell them you won't accept the Bush tax cut package.

For more information, see these resources:

i The difference in the cost of the extended unemployment insurance benefits over the ten-year period is a technical change because of the way federal and state UI taxes and trust funds operate.

ii The corporate expensing and depreciation costs that are temporary will cost less during the following ten years because the expectation is that businesses will take advantage of the tax breaks immediately rather than purchasing equipment or taking depreciation costs over the next ten years. This is why these tax cuts are expected to be stimulative.

iii This provision will increase federal revenue by $13 billion, offsetting some of the costs of the Baucus stimulus plan.
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