In April 2003, the U.S. Government Approved $350 Billion Dollars in Tax Cuts

In April of 2003, both the Senate and the House of Representatives passed versions of the national budget for next year. Included in the passed bills were certain concessions to President Bush, mostly revolving around his proposed $726 billion tax cut proposal. While Congress did not give the President free reign to implement every change that he had wanted to, it did allow for over $350 billion in tax cuts to take effect next year. Much like 2001's rate-reduction that resulted in a rebate to most taxpayers, these tax cuts are shortsighted in that they will most likely not help the economy and, for the most part, aid the rich more so than the poor.

One of the reasons that Bush was elected in 2000 was his promise of multiple, generous tax cuts for the American people. He stuck to those promises, and soon after inauguration began working on the above-mentioned rate-reduction. In itself, a rate reduction is a good idea, because it lowers overall taxes. However, this tax cut, which gave up to $600 cash back to most taxpayers, came at a time when the economy looked to be slipping. Bush's justification for the rebate was that it would stop the coming recession by putting more money into the hands of the people, who would in turn go out and spend it. In theory, this would stimulate growth of the economy. Defenders of the President's bill will say that the tax cut would have helped save the economy if not for the tragedies of September 11 and the dozens of corporate scandals that followed. I don't believe that is the case. One of the biggest problems with the rebate was that there was no earnings cap on it, meaning even taxpayers making $500,000 per year were eligible for the rebate. I find it hard to believe that these wealthy people who received a rebate immediately put the money back into the economy. More than likely, the additional money was invested or socked away in a bank.

Now the President is well on the way to passing more tax cuts. This wave of savings is definitely geared toward the wealthy as, among other things, it calls for the total elimination of the tax on dividends. Dividends are the method a large, publicly-held corporation uses to distribute its earnings to shareholders. Again, a practical idea, but much like the rate-reduction, this cut would help more of the people who need help if it had some kind of an earnings cap on it. In general, the very wealthy have large portfolios of stock and mutual funds and therefore receive the most dividends. So I propose the elimination of a dividend tax for those taxpayers with income below a certain threshold. All of the other credits toward income tax have some sort of a cap, so why shouldn't this one? Many will claim that the dividend tax is unfair to begin with, because these corporations are first taxed on their earnings, and then their shareholders are taxed on the dividends, creating double-taxation. This "double-taxation" is really just a mirage, because many corporations, especially not-for-profit ones, pay little or no tax the first time around. It is extremely unlikely that this tax cut will convince people to invest in corporations, which is in fact its basic goal.

The proposal also calls for the acceleration of tax rate cuts that were originally to go into effect in 2006. Reducing tax rates across the board, while it marginally helps the lower-income taxpayer, give much more benefit to the well-to-do. As an example, for a married couple making $60,000, a hypothetical tax rate cut of 2% would save them $1,200 per year. However, for a married couple making $350,000, the same cut would save them $7,000. At a time when many families are forced to have two incomes just to cover the costs of living, we should be rewarding the lower- and middle-income taxpayer more so than the rich. We can accomplish this by reducing the lower tax rates, for example, decrease the 15% tax bracket to 12%. This would still give some money back to the wealthy, but would make much more of a difference to the middle-class. I don't believe that lowering the highest tax rate from 39.6% to 36% is going to help the average person, because a majority of the population never even comes close to having income that reaches that tax rate.

The above-stated examples of the tax cuts proposed by President Bush, while disguised as "economic stimulus," seem to aim to help the very wealthy, and will most likely do little to rejuvenate the economy. Tax cuts can be very effective and may indeed help the economy get kick-started but promoting spending, but this will only happen if the money is put in the hands of those who need it and will actually spend it. When a majority of the savings goes to the rich minority of society, the goal of helping the average citizen is not accomplished.