The New Year in Taxes
EDITORIAL, NYTimes on
the Web, December 30, 2005
A surprise awaits the nation's
highest earners when they file their 2006 tax returns. Their taxes are
going down again -- whether or not Congress passes the investor tax cuts the
lawmakers have been promising. On New Year's Day, two additional tax cuts
will kick in, allowing people who earn upward of $200,000 a year to claim bigger
write-offs for a spouse, their children and other expenses, like mortgage
interest on a vacation home.
The bolstered write-offs were enacted in 2001, but with a delayed start date
because of their high cost: according to Congressional estimates, the new
breaks will cost $27 billion over the short term, exploding to $146 billion from
2010 through 2019. By then, most of the benefits would flow to taxpayers
who make more than $1 million a year.
With the nation deep in debt, at war in Afghanistan and Iraq, with Congress
voting last month to slash programs for health care and student loans, and with
a debilitating shortfall building in Medicare -- the decision by Congress to let
these particular tax breaks take effect now is flabbergasting. But it is
not out of character.
The Bush family has a long history with this particular part of the tax code.
In 1990, the first President Bush -- in a move that now seems quaint in its
sense of responsibility -- had to raise revenue to rein in the budget deficit.
He was loath to hike the top tax rate, then 31 percent. So he opted
instead for a provision that limited the amount well-heeled Americans could
deduct from their taxes for a spouse and dependents, and for certain expenses,
like vacation home mortgages. Tax cutters in Congress, known then as
supply-siders, were furious.
The second President Bush has been guilty of irresponsibility and fuzzy math
when it comes to taxes, but rescinding his father's reasonable legislation was
not among his priorities. During his first year in office, however, he set
off a tax-cutting frenzy when he proposed to give back the Clinton-era budget
surplus via hundreds of billions of dollars in tax cuts. Congress then
added some cuts of its own -- including a provision to revoke the limits on
write-offs put in place by the elder Mr. Bush.
The provision's effective date was set for Jan. 1, 2006, and, like other tax
cuts from 2001, it is scheduled to expire at the end of 2010. Such
"phase-ins" and "sunsets" are ploys to cram as many tax giveaways as possible
into one law without overtly busting the budget.
Here's where the tale turns absurd: The tax cuts of 2001, followed by
those of 2002 and 2003, have busted the budget. The surplus -- the
original rationale for the tax cuts -- is long gone, replaced by a deficit
projected to reach $530 billion by 2015, if the cuts are made permanent.
And yet Mr. Bush and Congress persist with tax cuts -- for people who don't need
the extra help and for purposes that have nothing to do with the country's
obvious problems.
It's a heck of a way to begin the new year.
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