The Raven

Friday, May 16, 2003

Death and Blogs

In this case, it's us. The Raven bows out now, and hopes you've enjoyed reading this Weblog as much as we've enjoyed writing it.

For now, it's time to focus on other things. When the urge to write becomes overpowering, we'll be back. Until then, surf well.

Best regards, The Raven

5:22:34 PM

The Tax Man

Maybe the Beatles said it best:

Let me tell you how it will be,
There's one for you, nineteen for me—
Cause I'm the tax man,
Yeah I'm the tax man.
Should five percent appear too small,
Be thankful I don't take it all—
Cause I'm the tax man,
Yeah I'm the tax man.
If you drive a car I'll tax the street.
If you try to sit I'll tax your seat.
If you get too cold I'll tax the heat.
If you take a walk I'll tax your feet.
Well I'm the tax man,
Yeah I'm the tax man.
Don't ask me what I want it for
If you don't want to pay some more—
Cause I'm the tax man,
Yeah I'm the tax man.
Now my advice for those who die:
Declare the pennies on your eyes—
Cause I'm the tax man,
Yeah I'm the tax man.

And you're working for no one but me.

We noticed that last night that the Senate just squeaked by a $350-billion tax cut bill, which trimmed down the $550-billion cut proposed by the House, and is less than half of Bush's original $725-billion reduction. The Senate proposal has yet to be delivered, however: Senator George Voinovich (R-Ohio), who led the fight to keep the bill's cost to $350 billion, said, "There are going to be some difficult days ahead. We're in the playoffs now, but the World Series is what comes out of conference."

There are some nasty provisions in the Senate version, by the way, and while I'm all for cutting taxes—I'll explain why in a moment—this particular package doesn't look like the best way to do it.

Among the bill's highlights:

Taxpayers can exclude 50% of their dividend income in 2003. From 2004 through 2006, all dividend income is tax-exempt. The tax is reinstated in 2007.
A speed-up in the scheduled reductions in income tax rates. Under the 2001 tax cut law, those reductions would not take full effect until 2006.
An increase from $600 to $1,000 for the tax credit families can take for each child.
Tax relief for couples who are hit by the so-called marriage penalty.
Expanded incentives for small businesses to invest in new equipment.

So much for the velvet glove. Now for the iron fist: During the Senate negotiating to pare down the cuts to $350 billion, "the effort to expand the bill's dividend tax relief was the focus of heavy lobbying by GOP leaders and the White House." And somebody has to pay for that. Turns out to be us. Senator Don Nickles (R-Okla.) proposed trimming the tax relief provided for married couples and small businesses by $43 billion.

[Democrats] accused Republicans of penalizing married couples to pay for bigger tax breaks for wealthy shareholders.

"This is absurd," said Sen. Max Baucus (D-Mont.). "This is irresponsible."

The other Gom Jabbar handbox trap is a rather ugly repeal of the $80,000 foreign-income exclusion credit currently affecting Americans who reside overseas. I used to take advantage of that one myself. As the Senate version now stands, even if you live abroad and pay income taxes to a foreign government, all of your income will now be considered fully taxable U.S. income. Ouch. Senator John B. Breaux (D-La.) tried to add an amendment to drop this provision.

Breaux said that would undercut an important incentive for workers to accept jobs overseas.

Many Republicans shared Breaux's opposition to the tax increase but voted against his amendment because he proposed paying for it by scaling back the dividend tax cut.

These three items: marriage-penalty relief, small-business assistance, and foreign-income exclusion should not have been sacrificed like this to allow dividend tax elimination. The House version, which simply would have scaled back dividend tax relief to the first $500-worth of income seems the better idea.

But why cut taxes at all? There are several good reasons. For one thing, we've observed a generally burgeoning role in Federal influence across the board over the past few decades, with a concomitant reduction of state authority. Far from being a bureaucratic blip, this reorganization has the very significant effect of reducing individual political authority: State government is more reactive to local government—where you and I have more control. While excruciatingly painful to a number of constituencies, eventually the states will be forced to re-adopt a number of functions they've relinquished to the Federal level.

Another matter is simply bureaucratic logic. When a program, a department, an institution, or a layer of bureaucracy is established anywhere, it tends to grow of its own accord. Every dollar allocated to such a body will be spent. As far as government goes, it is a general truism that there is no such thing as a surplus. "But we had a Federal surplus under Clinton," you might argue. Yet there was no surplus—only the potential for one. Every extra dollar envisioned in the latter half of the '90s as accruing in the future would surely have been earmarked and promptly spent. The only way to reduce the size and cost of government is to choke off the money stream that feeds it.

Yet another matter is "the economy," which we'll define here as the stock market indices, the unemployment rate (or number of jobs available), the value of the dollar, the GDP, inflation, and rates of personal savings. You might also add heavy equipment and durable goods orders and building starts. It may be that reducing Americans' tax burden will result in an upswing in these indicators to our benefit. Since I'm not an economist and do not have access to budget data like that commanded by the Senate Finance Committee, I don't know if this hypothesis is correct or not, but I don't mind giving the idea a shot.

So in a nutshell, reducing taxes tests the worthiness of the various social and infrastructural programs currently in place, empowers individuals and arms them with more choices, and potentially bolsters the economy. The alternative is endlessly upward-spiraling rates of taxation and a strangled society, as we see in Great Britain. One thing's for certain: If this is a mistake, our lawmakers know how to soak us good and hard with brutal tax rates and outright fiscal appropriation. If they need to do it, they will.

Later today: Death and Blogs.

12:33:20 PM