Into the Sunset

SYNOPSIS: More accounting tricks and scams in the House version of the tax cut bill

Chutzpah, according to the classic definition, is when you murder your parents, then ask for sympathy because you're an orphan. But what do we call it if after you are placed with foster parents, you try the same thing all over again?

I ask this question in light of the tax-cut package the House is expected to pass today a package that relies on exactly the same bait-and-switch tactics used to sell the 2001 tax cut. Since the scam involved in the 2001 tax cut remains one of the wonders of modern political economy, it is a measure of our leaders' contempt for the intelligence of the public or maybe for the press that they think they can use the same tricks a second time.

Here's the story: in 2001, as now, some swing senators insisted on a budget resolution limiting the size of any tax cut. No problem. House-Senate negotiators pushed through a huge tax cut anyway, "saving" several hundred billion dollars by making the whole thing expire in the 10th year. Among other things, this "sunset clause" implied that heirs to large estates would pay no tax if their parents died in 2010, but would face significant taxes if their parents made it into 2011. At the time I suggested that it be renamed the Throw Momma from the Train Act of 2001.

Needless to say, the bill was silly by design. The administration didn't intend to compromise: it fully expected to get the sunset clause repealed in a future Congress. And President Bush was soon out there ridiculing the way the tax cut was programmed to expire, implying that the expiration date was imposed by scheming liberals, when in fact it was a trick perpetrated by his own Congressional allies.

Now Congress is voting on more tax cuts. This time we're already running a record budget deficit, and the long-run prospect is bleak. Still, the administration claims to be making a concession by agreeing to scale back its $726 billion tax cut to a mere $550 billion.

So how does the House bill, which is broadly similar to the administration's proposal, stay within that $550 billion limit? Sunset clauses! Many of the provisions would supposedly expire in 2005, others in 2012. Otherwise, it's a bigger tax cut than the administration proposed. And the sunset clauses, like those in the 2001 tax cut, are clearly a mere gimmick: as soon as a tax cut becomes law, the administration will begin demanding that the whole thing be made permanent.

The Center on Budget and Policy Priorities estimates that the true cost of the House bill, without the sunset scam, would be $1.1 trillion over the next decade. You know, $550 billion here, $550 billion there, and pretty soon you're talking real money.

The new tax cut plan echoes the 2001 scam in other ways. In 2001 a tax cut that delivered about 40 percent of its benefits to the richest 1 percent of families was marketed as a tax break for ordinary folks. The same is true this time. In fact, the extent to which the House bill favors the rich is breathtaking: the typical family would get a tax break of only $217 next year, but families with incomes above $1 million would get an average of $93,500 each. The center estimates that over the next decade, 27 percent of the tax cut about the share that goes to the bottom 90 percent of the population would go to these very high-income families, who comprise a mere 0.13 percent of the population.

Finally, as in 2001, we're being told that this tax cut will create lots of jobs. But why should we believe that? It's hard to find an independent economist who thinks that the Bush proposal would create the 1.4 million jobs claimed by the administration and as I've explained in this column, even that many jobs would be a poor payoff for a tax cut that big.

And bear in mind that Bush-style tax cuts now have a track record. Of the 2.1 million jobs lost over the past two years, 1.7 million vanished after the passage of the 2001 tax cut.

Nonetheless, the odds are that this scam, like the scam of 2001, will succeed. The tax cut will be passed, and the budget will plunge even deeper into the red. And one day we'll realize that international investors are treating us like a banana republic that they won't finance our trade deficit unless they are paid very high rates of interest (have I mentioned that the dollar has just fallen to a four-year low against the euro?) and everyone will wonder why.

Originally published in The New York Times, 5.9.03