Tax-cut leftovers

Published: January 2, 2006

THE EARLY DAYS of the Bush administration seem like another era: no Sept. 11 attacks; no war in Iraq; no Hurricane Katrina; no $317 billion deficit. The president's chief ambition early in 2001 was to cut taxes deeply to soak up large budget surpluses. Yesterday, two sections of that law took effect, and will reduce taxes for the wealthiest Americans by about $27 billion over the next five years.

They ought to be repealed immediately to restore a bit of fairness to the federal tax code.

The tax cuts would repeal two provisions of a 1990 law, signed by the first President Bush, that made a start at restoring fiscal balance after the deficits of the Reagan years. These provisions limited the deductions and personal exemptions that high-income people could use to reduce their tax bills.

The changes are not to be confused with the alternative minimum tax, another part of federal tax law, which also sharply limited deductions for affluent Americans. Because it does not account for inflation, the AMT is about to hit people far lower on the income scale than those who will benefit most from the new tax cuts. A provision in the tax code that eased the impact of the AMT expired yesterday. The new tax cuts will provide a small break to people making about $150,000, but, according to the Urban Institute- Brookings Tax Policy Center in Washington, more than half the $27 billion will go to the two-10ths of 1 percent of households with incomes above $1 million a year. These Americans already have received inordinate benefits from the tax cuts pushed through by the Republicans beginning in 2001. It's not fair to the other 99.8 percent of taxpayers that the millionaires get more.

The tax cuts are taking effect a few weeks after Congress -- worried about the burgeoning deficit yet planning to cut taxes even further -- managed to agree on $39.7 billion in budget cuts to domestic spending programs.

Among those harmed would be poor people on Medicaid, who would have to spend more on copayments for medical treatment, and college students who would find the cost of loans increasing.

The House and Senate quit work for the holidays without reaching agreement on every detail of the budget bill. They also failed to pass legislation to lessen the impact of the alternative minimum tax. It's probably too much to expect the Republicans to go back on the Medicaid and student loans charges, but in a spirit of shared sacrifice, the tax benefits that lingered from 2001 should be rescinded before they affect anyone's tax planning.

Perhaps that could be included in a bill to fix the alternative minimum tax, which otherwise will become a burden on many middleclass families. It's 2006, not 2001, and the pendulum needs to swing back toward fairness.