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Tax cut adds up to party division

Republicans and Democrats have different ideas on wealth and whether the Bush plan benefits all Americans.

By BILL ADAIR

© St. Petersburg Times, published February 12, 2001


WASHINGTON -- As President Bush was announcing his tax cut plan last week, Democrats parked a shiny black luxury car across the street from the Capitol. A cardboard sign by the car said Bush's proposal would provide a "new Lexus for every millionaire."

Democrats say Bush's proposal is heavily slanted to help the wealthy.

They say the richest 1 percent of taxpayers will receive an average tax cut of at least $39,000 -- enough to buy a new Lexus every year. By contrast, poor and lower-middle class families get little or nothing from the president's proposal, Democrats say.

But Republicans say the Bush plan helps all taxpayers and that a typical family earning $50,000 would ultimately get a $1,600 cut. Republicans say there's nothing wrong with giving more to wealthy families because they pay the most taxes.

The debate over the Lexus reveals a fundamental difference in how Republicans and Democrats approach tax cuts. Despite all the talk of bipartisan harmony in the past few weeks, the parties have starkly different ideas about wealth.

Democrats think more money should go to poor and middle-income families. They say rich families don't need another Lexus.

"The people at the top have had the greatest increases in income in the last 10 years," House Minority Leader Richard Gephardt said. "They have done very well and, frankly, they are not hurting."

Republicans have a different approach. They say they want to help everyone -- including the wealthy. They say the government shouldn't penalize people because they are successful.

"We've always held the belief that those who pay taxes ought to be the beneficiary of tax cuts," said Sen. Larry Craig, R-Idaho.

The partisan tug-of-war over taxes reflects the parties' constituencies. Democrats are playing to their base of labor unions and minority groups, and Republicans are trying to strike a chord with the affluent.

The debate over the Lexus is important because it is virtually certain that Congress will pass a tax cut this year. The question is who will get the money.

The U.S. tax system is progressive, which means wealthy taxpayers pay a much larger share of their income than people who are poor or middle-income. Married couples earning more than $297,000 are subject to a 39.6 percent rate, while a couple earning up to $45,000 has a 15 percent rate. Many families earning less than $20,000 pay no income taxes.

Bush's plan would keep the progressive system, but instead of five rates, it would have four, and each would be lowered. The top rate would be 33 percent instead of 39.6; the lowest rate would be 10 percent instead of 15.

Republicans say the plan would help all taxpayers. It would double the child tax credit from $500 to $1,000 and reduce the "marriage penalty," the higher rates that some married couples pay.

"This package will help the working families of America," Senate Majority Leader Trent Lott said. He emphasized that they are "across-the-board tax cuts."

Sen. Charles Grassley, R-Iowa, said the plan means that "every taxpayer in the United States is going to get a tax reduction."

Grassley said the plan would take 6-million people off the tax rolls, which would make "a more progressive tax system than we have under current law."

But it also is clear that wealthy taxpayers are the biggest beneficiaries. The plan would:

Eliminate the estate tax, which taxes the wealthiest people who die the most.

Reduce the top tax rate from 39.6 to 33 percent -- a move that could save some families tens of thousands of dollars.

Make wealthy families eligible for the child tax credit. Families earning more than $110,000 cannot receive the $500-per-child credit. But Bush would raise eligibility to $200,000 and double the credit.

The Center on Budget and Policy Priorities, a liberal research group, said the top 1 percent of taxpayers receive about 40 percent of the benefit of Bush's plan, even though that same group pays only 20 percent of federal taxes.

The center also said that more than 12-million low- and moderate-income families with children would receive no tax cut from the Bush plan. Citizens for Tax Justice, another liberal group, says that nine out of 10 households would receive a tax cut that is less than the $1,600 amount Bush says a typical family would get.

Tom Daschle, the Senate Democratic leader from South Dakota, said those statistics show that the Bush plan would make the tax system less progressive.

"We don't think that distribution makes any sense at all," Daschle said. "We think it's unfair."

Democrats are developing a plan they say would distribute the tax cut more equally. Their plan is likely to give most taxpayers roughly the same amount, regardless how wealthy they are.

"We want to give (wealthy families) something, but we don't want to give them twice what they pay" in taxes, Daschle said.

The Democratic plan is likely to cost about $700-billion over 10 years, which is less than half the $1.6-trillion that Bush says his plan would cost.

But the Bush plan has tremendous momentum. Republicans have a slim but significant majority in both houses of Congress, so it's possible they could pass the president's plan without many changes.

Larry Sabato, a political science professor at the University of Virginia, said the Lexus argument might not resonate.

"Class warfare as a weapon doesn't work in times of plenty," Sabato said. "We're still in a time of plenty."

Stephen Hess, a senior fellow at the Brookings Institution, said the Democrats are in a bind because they want to satisfy their core constituency, but they also support a tax cut.

"They haven't quite figured out how they are going to approach this," he said. "There is going to be a tax cut and they want to take some credit for it."

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