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Get ready for it!

Four years into his presidency, Bush finally comes up with the novel idea of reining in federal spending. I've been skeptical up 'til now, but it appears his new budget will actually (get this!) cut programs.

All I can say is, brace yourselves for the media storm that's sure to ensue. I'd wager they're burning the midnight oil at the New York Times even as I type this, mulling over potential headlines. What'll it be this time, guys? "Elderly Widow Forced to Eat Alpo?" Nah, been done. "Rickets: America's New National Shame?" Has potential. "Honor Students Compelled to Give Handjobs to Pay Tuition Bills?" Maybe. "Tom Joad Returns: Bush's Legacy on the Farm." Like it! But can we work "Tobacco Road" in somehow?

Gee, I can't wait....


I'm all for reigning in spending, but the problem with this budget is in what is being reigned in. Spending on defense and homeland security are increasing, while spending on education and health care (specifically, Medicaid, which is a joint state/federal program)would be cut back.

And he wants to curtail this spending while trying to make his tax cuts (which helped a lot of wealthy folk) permanent. This tax cut program cost a lot of money. I have no problem with his tax cut's lowering the tax rates for the lowest bracket, or increasing the child credit, or increasing the IRA and 401(k) limits, but he did not need to lower the top brackets, or phase out the estate tax (which is a possible $850 billion in revenue).

Some of the disagreements here (e.g., a progressive tax structure and the estate tax) are just philosophical, and not worth going into in a comments thread.

But I would like to move beyond this notion that tax cuts "cost" money. They don't, unless you're a government bureaucrat who regards the U.S. Treasury as his own. Taxes cost us money. Tax cuts don't.

We've also reached the point where almost the entire federal budget is funded by the top half of income earners. In order for there to be any meaningful tax cuts at all, taxes at the upper income rates have to be lowered.

And for all the talk about Bush slashing tax rates on the rich, some perspective would be helpful. The top rate is still 35%. It was only 28% as recently as 1990. Both rounds of Bush's tax cuts still haven't moved rates back down to where they were before WJC took office.

Tax cuts "cost" money in the sense that the government's revenue take is lower, which means either some services will be cut or other taxes will have to be raised to make up the difference (or the alternative, which we've seen the last several years, of increasing national debt.)

It's actually services that cost us (the citizens) money in the form of taxes. Everyone benefits from certain services (police protection, military, etc.), some benefit from certain services (education, interstate highways, basic health services), and some services only benefit very few. I think sometimes people don't like certain services (usually the ones they themselves don't use) being paid for with their money. A lot of people certainly don't like Social Security taxes, but then again, a lot of people don't like the money we're spending on this effort in Iraq, either.

And I don't mind the federal budget being funded by the top half of income earners. We can afford it a lot better than the families of four trying to eke by on $25,000.

Whether tax cuts are meaningful or not is certainly a matter of perspective. Instead of dropping the top rate from 39.5% to 35% he could have lowered the bottom rate from 15% to 5% instead of down to 10%. Or something like that.

Tax brackets have come down a lot historically speaking. At one point (I think around Eisenhower's or Truman's time), the top bracket was an astounding 90+%. Even I don't want them that high, but it is a shame that a couple making $320,000 are in the same tax bracket as some CEO earning $15,000,000 per year.

Hey, Tracy! I guess my problem with the "live within your means" definition of fiscal conservatism for government is that the government has no "means" to live within, except for what it confiscates from us. This balance sheet approach makes sense for an individual, but not for a government with no wealth or resources of its own, IMO.

Barry, you're too polite as usual.

Tracy, thanks for pointing out that Bush lowered the tax rate on the lowest income earners by 33% (from 15% to 10%), the highest margin of any income group. Yes, he could have lowered it to 5%, but that wouldn't have much of a stimulative effect, would it? Besides, it's a better tax break than those losers ever got under their beloved Clinton.

Moreover, I'm tired of this "rich people can afford it more" attitude to taxes! So what? The rich can also better afford the $100 lapdance I just got tonight, but that doesn't mean they should have to pay for it.

Under a flat tax, the rich pay more and the poor pay less. Everyone pay in direct proportion to their financial well-being. Hard to argue with that. Unless you're a commie, of course.

But it's very true that rich people can afford to pay more taxes. And let's not get carried away - there's a big difference between health care and lap dances.

I like the progressive structure - where the larger income folks pay a larger percentage of their income. 30% of a $150,000 salary still leaves a comfortable life. 30% of a $25,000 salary is a huge hit in quality of life. That's why we have the progressive rate structure.

As to the stimulative effects of tax cuts...economists still argue over the effectiveness of it in reviving the economy. I think a better stimulus to the economy would be reinstituting the deductability of personal interest. And providing free health insurance to everyone so people would be healthier, more productive, have a better quality of life, and many businesses would be spared on of their most expensive benefits they currently offer.

I guess I gotta agree with Cranky here (sorta.) Unless you're an out-and-out redistributionist, the only valid argument for progressivity is that lower-income people spend a higher percentage of their income meeting the basic necessities -- food, shelter, clothing, etc. They have less "disposable" income, and should be taxed at a lower rate.

It seems that a flat tax could accommodate this by allowing a generous standard exemption (say $40k or so for the typical family.) That way, the effective income tax would go from zero at the low end and increase with income, asymptotically approaching the nominal tax rate for the very wealthy.

I also worry that if the government is funded almost exclusively by the wealthy, the majority of voters, being net beneficiaries of government services, will have no incentive to vote to control costs. Tocqueville predicted that a democracy can have only a finite lifetime: It lasts only until its citizens realize they can vote themselves largesse from the government fisc.

And I also agree that lapdances are different from government services. With a lapdance, no one is actually getting screwed. ;-)

I actually kind of like the National Sales Tax that has been tossed around for years, where there is a tax of about 25% - 28% on all goods, and the income tax, social security tax, Medicare tax, unemployment taxes, estate tax, and gift tax are all abolished.

The way you avoid the natural regressiveness of such a plan is to send monthly rebate checks to everyone based on income, so that the poorest effectively pay no tax, the poor pay only a tiny bit, the middle incomes pay a little more, etc.

There have been some convincing arguments that businesses, not having to pay the payroll taxes,along with the savings from not having to comply with the needlessly complex tax code, pass this savings along to customers in the form of lower prices, thus somewhat compensating for the high sales taxes.

The reason I like this plan is that you can control the amount of taxes you pay by choosing what stuff you consume. People who are thrifty will pay fewer taxes than those who consume a lot. As to how this would affect our economy in general, however, I have no idea.

The problem with any flat tax is this: the minute you create an exception for something - say property taxes, the other groups affected: charities, etc. will scream it is unfair and they would probably have a case.

There are many special interest groups who would be dead set against a true flat tax.

And that is why it is a theory which will never get beyond that status, IMO.

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