Bush's winning pitch on taxes

Author: James Toedtman

Published: September 29, 2004

President George W. Bush never had the luck on the baseball diamond that he's had pitching tax cuts.

A self-described junkball pitcher, Bush retired as a player after his freshman year at Yale University. But congressional approval of the $'-billion tax cutting measure he'll sign this week gives him a four-year winning streak as a tax-cut pitchman.

Since taking office, Bush has engineered three major cuts aimed at individual taxpayers and a fourth targeting business. Together, they have reduced federal revenue by more than $2.5 trillion over a decade, with the cuts expiring in 2010.

"Taxpayers have saved a heap of money," said Clint Stretch, director of tax policy at Deloitte Tax LLP.

The latest tax bill extends cuts that were put in place in 2001 and 2003 until 2009 and 2010. It also extends $14 billion worth of business tax breaks and credits, including Liberty Bonds for redeveloping lower Manhattan, that were set to expire this year. Finally, it blocks for a year the effect of the Alternative Minimum Tax.

The measure "smooths out ups and downs in these tax benefits and keeps them in effect at their current level through 2010," said principal tax analyst Mark Luscombe of CCH, a tax and business information company.

More significantly, the bill raises the political stakes, especially with the next administration and Congress facing a deficit of $422 billion and growing.

"They have taken off the table the necessity to do anything with individual taxes before 2009," Stretch said. Further, any effort to close the deficit will necessarily start with spending cuts rather than the politically perilous challenge of raising taxes.

The tax cuts enacted since Bush took office have provided a direct benefit for American taxpayers. They have included a $1,000 per child tax credit, the standard deduction adjustment that provides marriage penalty relief, cuts in capital gains and dividend tax rates, and reduced marginal rates.

The average federal tax bill for a married couple earning $75,000 with two children has dropped from approximately $5,700 to $4,000, according to Newsday calculations. For the same household earning $225,000, the tax bill dropped from $46,600 to $41,500.

Such benefit is a political reality that was evident when Congress overwhelmingly approved the tax cut measure Thursday night. The House and Senate voted 339-65, and 92-3, respectively.

Except for Brooklyn Democrats Rep. Major Owens and Rep. Edolphus Towns, the entire Long Island and New York City delegation voted for the measure.

Robert Greenstein, director of the Center on Budget and Policy Priorities, called the package "cynical, even for Washington, D.C., in September 2004." He and many Democrats were very critical of Republicans' refusal to adjust the child credit to include minimum-wage workers.

An estimated 4 million taxpayers will lose the credit.

The most expensive feature of the measure was also the most conspicuous problem facing taxwriters: the Alternative Minimum Tax. Enacted three decades ago to snare wealthy tax dodgers, the AMT now affects many middle-income taxpayers, especially in areas with high state and local taxes like New York.

The AMT disqualifies certain tax exemptions, requiring taxpayers to pay more if their income exceeds a certain level. The latest tax cut includes a one-year patch that sets the income threshold at $58,000 for married couples, rather than $45,000. The latest tax bill increases by 3.4 million the number of taxpayers now facing the AMT, according to Urban Institute tax specialist Len Burman.

Sen. John Kerry was campaigning Thursday and did not vote on the measure. He repeated his position that he favored the middle-class breaks, but would repeal tax cuts for those earning more than $200,000.

One of the loud voices opposing the cuts was Sen. John McCain (R-Ariz.), a deficit hawk. "We have got to wake up and take a long, hard look at how we are going to pay for all of this. We're hurting our children, our grandchildren and who knows how many future generations of Americans. We are tying a millstone around their necks, and it is a grave mistake."

Then he voted for the bill.