A cutting debate: Tax deadlock exposes rift in GOP

Published: July 22, 2004

President Bush's hard-nosed push for more tax cuts has run into an unexpected obstacle: Warring Congressional Republicans.

House and Senate conferees were on the brink Wednesday of announcing a deal to extend the so-called "middle-class" tax cuts for two years. Without the extension, many Americans would see a slight tax increase next year -- which is why the White House and Congressional leaders are so eager to see it passed. As worked out by a conference committee, the legislation would preserve the increased child tax credit, expand the lowest tax bracket and keep in place the repeal of the so-called marriage penalty through 2006.

But the bargain is very much on the rocks -- caught between true fiscal conservatives who are concerned about its impact on the budget, and more radical leaders who have adopted the Bush mantra of cuts at any cost. That conflict -- along with opposition from the White House -- has sidetracked the bill, at least for now.

It's hard to see why the White House deep-sixed the deal. In a time when many families are struggling economically -- and a national election is looming -- this kind of cut is politically attractive. The deal that emerged from the negotiations would give low-income families modest benefits, though wealthier families will see larger windfalls. And the two-year time limit helps mask the cuts' eventual (inevitable) impact on the budget deficit.

Those arguments didn't sway Bush, who wanted a 5-year, $120-billion extension that gave an even more potent boost to families earning more than $100,000 -- but didn't want to identify ways to pay for it.

There are some obvious answers. The Senate proposed a plan to repeal $130 billion in tax shelters over 10 years. But Bush wants to funnel those savings into new and "improved" corporate tax breaks instead. The money would be far better spent on targeted tax breaks for families struggling on the lower fringes of the economy or to encourage working-class benefits like employer-sponsored health coverage.

Another option identified by many analysts is a slight rollback of the tax giveaways that flowed to the wealthiest Americans. The Urban Institute and the Brookings Institution have released an analysis showing that those with more than $1 million in taxable income reaped average tax cuts this year of $123,600. That's almost enough to pay the entire salaries of four workers earning the median wage in 2004. Why not shift a little back to the ones who need it the most?

In any alternative scenario, it is those workers who lose. Growing deficits translate into less money for domestic programs that make a difference in the lives of working families -- like public education, Medicare, transportation and public safety.

The tax-cut package acknowledges that -- though it is still deeply flawed. The Bush White House just doesn't seem to understand why, or how deeply members of its own party are being split by an approach that a significant number of them recognize as foolhardy.