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A Times Editorial

Strategic cutting

Republicans have broken their tax cuts up into several pieces, each targeted to specific voter groups. But politics, not fairness, seems to be the goal.

© St. Petersburg Times, published July 31, 2000

Congressional Republicans wrapped up their election-year tax cuts just in time for the opening of the GOP national convention in Philadelphia. And what a clever tax-cut strategy it is. It even has nervous Democrats wondering if the Republicans have finally gained the political upper hand on tax cuts.

Here's how the GOP's divide-and-conquer strategy works: Rather than roll out another budget-busting, across-the-board tax cut proposal that makes an easy target for Democrats, Republicans have broken their plan up into into several bite-size pieces targeted to specific voter groups. Last week, the House passed the last of the Republican tax bills -- the elimination of the tax on Social Security benefits. In all, these cuts add up to $700-billion over 10 years. There's something for almost everyone, except the people struggling at the bottom of the ladder.

Then, to build support among middle-class voters, they are marketing their ideas with misleading labels. They propose to boost retirement savings, phase out the so-called death tax on estates and ease the "marriage penalty" for working couples. In each case, though, the Republican cuts have unadvertised effects.

A close look at these tax plans shows that rather than add fairness to the tax code, they shift even more breaks to those who deserve them least. Consider the marriage penalty: Rather than simply helping those two-income married couples who suffer the penalty, the Republicans made much broader cuts that also reward couples who already enjoy a marriage bonus.

Because the standard deduction and progressive tax brackets for married couples are not double those for single filers, couples in which both husband and wife work are typically taxed at a higher rate than single filers. Currently, 24.8-million couples are unfairly penalized by this provision. But while the Republican proposal would eliminate much of this disparity, it would have the side effect of boosting an equally unfair marriage bonus -- the extra tax benefit enjoyed by 21-million couples with a primary earner. Republicans have refused to consider a more precise fix proposed by Democrats that would sharply reduce the marriage tax penalty without expanding the marriage bonus.

On estate taxes, congressional Republicans are using the plight of small businesses and family farms as cover for a huge tax giveaway to some of the country's wealthiest families. The plan that passed the House in June would phase out federal estate taxes over 10 years, at a cost to the U.S. treasury of $50-billion. The law already exempts the first $675,000, an amount that can be doubled by couples with a little estate planning, so only the wealthiest 2 percent of estates pay any inheritance taxes at all. Republicans, of course, rejected a Democratic alternative that would have substantially shielded small businesses and farms.

The Republican plan to encourage added retirement savings is also tilted toward the well-off. It would increase annual IRA contribution limits from $2,000 to $5,000 and boost allowable 401(k) contributions to $15,000. While too many Americans fail to save adequately for retirement, the reason isn't the stinginess of current contribution limits. An amendment offered by House Democrats would have provided lower income workers a retirement tax credit, with the government contributing $1,000 for every $2,000 workers put away. Republicans weren't interested.

President Clinton has vowed to veto these tax-cut bills, and Republicans can't wait for him to do just that. They figure it's a win for them either way. If they can't take credit for these politically popular tax cuts, they plan to make the president's vetoes an issue in the fall elections, starting with this week's convention speeches. They might even pull it off if voters don't wake up to what's really going on.

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