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Despite boom, Bush pushes tax cuts

By BILL ADAIR and TIM NICKENS

© St. Petersburg Times, published February 27, 2000


Some economists say the Texas governor is giving a false impression that Americans are struggling under higher tax burdens.

* * *

On an unseasonably warm winter morning last week, more than 1,000 business leaders streamed into the Economic Club of Detroit's downtown breakfast to sip coffee, eat quiche and listen to Texas Gov. George W. Bush passionately pitch a giant tax cut.

"I am concerned about today's tax burden on the American people," the Republican presidential candidate said to polite applause on the day before the Michigan primary. "Today the taxes are the highest they have been since World War II."

In fact, most Americans have seen their tax rates go down.

Bush cited the example of a single mother of two children who earns $22,000 per year. He said she pays a higher marginal tax rate than someone earning $200,000 per year.

"The current tax code not only penalizes entrepreneurship, it penalizes people who have got the toughest job in America, people who are struggling to get ahead," Bush said.

In fact, the woman he cited is treated so favorably under current tax law that she has a negative tax and would be entitled to a $1,701 check from the government.

As he sells his tax plan, Bush is painting a distorted picture of the nation's tax burden.

Although his examples are technically correct, they neglect an important and widely accepted fact: tax rates have gone down for lower and middle-class families during the past 20 years.

"The average guy is really not paying very high taxes," said Bruce Bartlett, a fellow at the National Center for Policy Analysis, a conservative think tank. "That's a message not too many Republicans want to hear. They want to believe Joe Sixpack is being hit with these high taxes. It's just not true."

Indeed, Joe Sixpack has more beer money these days.

For a family earning the median income, now $54,900, the average rate of income and payroll taxes has declined from 17 percent in 1979 to 15 percent last year, according to the Treasury Department.

Poor families are faring even better. For those earning half the median income, the average rate has fallen from 11 percent in 1979 to 6.5 percent today.

As for that single mother, Bush is correct. Her marginal rate -- the top rate that applies to each additional dollar she earns -- is at least 36 percent because of a tax program that is supposed to give her an incentive to work.

But in trying to illustrate a heavy tax burden, Bush picked a poor example.

That single mother receives such favorable treatment in the existing tax code that she doesn't even pay income tax.

Citizens for Tax Justice, a liberal tax policy group, says the woman is actually entitled to a rebate of $1,701 because of the Earned Income Tax Credit, a program aimed at encouraging low-income taxpayers to work rather than turn to welfare.

Those facts have not deterred Bush from saying that high taxes justify his tax plan, which would provide $483-billion in cuts over five years.

In his campaign speeches, Bush calls the current tax rate "an unfortunate legacy of Clinton-Gore." He points out that the World War II peak occurred when there were millions of Americans fighting the war, which presumably would justify a higher tax burden.

The World War II line has become a Republican mantra. Many other GOP senators and House members have cited the same statistic in calling for tax cuts in the past year.

The World War II comparison is for total taxes as a percentage of the gross domestic product, the nation's total output of goods and services. It is a broad-brush way to measure the tax burden that is especially good for comparing the United States with other countries.

Some economists say it gives a misleading picture of the burden on families.

"The impression that's created is that most Americans are struggling under higher burdens," said Robert Greenstein, executive director of the Center on Budget and Policy Priorities, a liberal group. "That is flatly false."

The World War II comparison hides the fact that middle-income taxpayers now pay lower rates. That is because the GDP number has been heavily skewed by new money flowing to the wealthiest families, economists and tax policy experts said.

New tax brackets have been added in the past 10 years that capture a larger share of wealthy Americans' income at a higher rate. That, combined with a surge in income from the robust economy -- especially from investment income -- has raised the amount of taxes paid by wealthy families.

"What has happened in the last 20 years is a dramatic increase in the income for the well-to-do," said Henry Aaron, a senior fellow at the Brookings Institution, a liberal policy group.

In contrast to Bush's World War II number, many indicators show tax rates are down over the past 20 years. Bartlett, who wrote a detailed analysis of tax burdens in a recent issue of Policy Review, cited these:

Average tax rates are down for lower-income families. Many families actually have a negative tax because of the refundable Earned Income Tax Credit.

For most taxpayers, the marginal tax rate is down. That rate -- the top bracket that applies to any given taxpayer -- is important because it affects our decisions about working more, economists say. For a family earning the median income over the past 20 years, the marginal rate fell from 24 percent to 15 percent.

Even rich families are paying lower rates. The top rate bracket is about 40 percent, down from 70 percent two decades ago.

Said Aaron: "The fundamental point is that for the mass of American taxpayers, tax rates have not gone up."

Bush campaign officials insist that their examples bolster the case for a large tax cut.

Larry Lindsey, a Bush economic adviser, acknowledged that middle-income taxpayers are paying lower rates, but said their incomes have been rising more slowly because of the heavier tax burden on people at the top of the scale.

"When government takes money out of the private sector, we all feel it," Lindsey said.

John Cogan, another Bush adviser, said the single mother example was valid because Bush is especially concerned about the high marginal rates she faced. Even though she was treated so favorably that she had a negative tax, she still faced a high marginal rate that discouraged her from working for a higher salary, Cogan said.

Cogan said Bush "is focused on the problem of how the government is impairing her ability to get ahead."

But that message has not struck a chord with the public.

The fact that taxes are down for millions of Americans helps to explain why Bush's tax cuts have not won broad support, even among many mainstream Republicans who like him.

In dozens of interviews with voters in the early election states of Iowa, New Hampshire, South Carolina and Michigan, tax cuts were rarely mentioned as the top reason for supporting Bush.

"Where is the surplus going to go?" asked Greg Corda, a 32-year-old manager at DuPont Automotive outside Detroit, before Bush's speech Monday. "I think it should pay down debt. You've got an economic boom, and when it turns the other way, I'd rather be in a better economic position."

Bush says there is a simple reason for that: The Clinton administration.

"America has been told for seven years that if you give somebody their money back, somebody will suffer," Bush said in Detroit last week. "The zero-sum politics of the current environment in Washington, D.C., is spread the gospel that if you give somebody money back, a person's not going to get a Medicare check, Social Security may suffer."

As Arizona Sen. John McCain has won support for arguing that most of the budget surplus should be used to pay down the federal debt and shore up Social Security, Bush has adjusted his tax cut pitch.

He still says taxes are high and often cites the single mother's predicament. But he also emphasizes that he would earmark half of the budget surplus during the next decade to bolster Social Security and reduce the federal debt.

That does not mean he is giving up on tax cuts.

Bush, who pushed record tax cuts through the Texas Legislature, is adamant that he will stick with his tax proposal through the primary season and into the general election if he wins the Republican nomination.

On Friday, Bush began airing a new television ad in California and four other states. Among the new lines: "He's the candidate with a tax cut called "Reaganesque' and "worthy of a new president.' "

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