Presidential candidates on tax cuts

Author: S.V. Date

Published: October 8, 2004

Unless you're rich, your tax cuts are probably safe, at least through 2008.

After four years of debate on the wisdom of President Bush's $270 billion in federal tax cuts, all that is on the table for possible revision in this presidential election year is the portion that benefits Americans with incomes of more than $200,000 annually.

It is that group - about 3 percent of the population - that Democrat John Kerry thinks should pay for his health care, education, alternative energy and other proposals, by giving up their tax cuts.

Under Kerry's plan, those Americans would see the income tax rate on earnings above that threshold rise from 35 percent to 39.6 percent - the same as it was before 2001.

Bush bashes that proposal on the campaign trail, saying the wealthy would figure out a way to dodge the tax hike.

"He says the tax increase is only for the rich. You've heard that kind of rhetoric before," Bush said in a speech this week.

Beyond that, he and Vice President Dick Cheney say Kerry's tax hike would slow the creation of new jobs because 900,000 small businesses in the form of partnerships and so-called "subchapter S" corporations - entities that pay individual income tax rates, not corporate rates - would get hit with the higher rate.

"That's not smart because seven out of 10 new jobs in America are created by small businesses," Cheney said during his Tuesday night debate with Democrat John Edwards. "You do not want to tax them. It's a bad idea to increase the burden on those folks."

But the Republicans' 900,000 figure, out of 25 million such sole proprietorships and small businesses, refers to the number of filers who have a total income of more than $200,000, regardless of how much comes from the small business.

President Bush, for example, fell into that category when in 2002 he reported earning $1,549 from various partnerships and S corporations, even though his businesses had no employees other than himself.

When small "businesses" that have no employees other than the owner are excluded, the total of affected businesses falls to about 470,000.

"Bottom line: Less than 5 percent of small businesses would face a tax increase," said Len Burman, an economist with the Tax Policy Center, affiliated with the Urban Institute and the Brookings Institution.