Cutting taxes always sounds good, but before you sign up to the idea, you’d better find out which taxes, whose taxes and what the cuts will cost.
A deal that sounds too good to be true, probably is.
Leaders in Congress are saying that we can afford to extend the Bush-era tax cuts at the same time that they are demanding cuts across the board from programs that we depend on.
They argue that we must cut state aid, money for education and other programs while saddling our children and grandchildren with more debt to pay for — not dams, highways or children’s education — more tax breaks to those who need them least.
Our tax policy reflects what our real priorities are. That’s why we have to look so carefully at the temporary tax cuts that are about to expire and start asking some questions.
First, which taxes are our leaders trying to cut? Some only or mostly apply to wealthy households, so when they’re kept low, only the wealthy profit. For example, the Bush tax cuts for people earning more than $250,000 a year reduced taxes on capital gains and corporate dividends that benefit primarily households at the very top of the income and wealth scales.
Next, whose taxes? Income taxes are based on ability to pay. So if income taxes are being cut by the same percentage across all income levels, wealthy households will save much more money than middle-class families. A tax cut that’s worth a few tankfuls of gas for a working family might buy a rich family a new car.
Finally, what will the cuts cost us, in services lost, debts increased, or both?
When we cut public services, individuals and communities suffer, classrooms get more crowded, college tuition assistance shrinks, potholes proliferate. Bedrock middle-class programs such as Social Security, Medicare and Medicaid are squeezed and face a more uncertain future.
So cutting taxes sometimes can take us down the wrong path. In fact, right now, it’s a path leading over a “fiscal cliff.”
That’s the term used to describe the trillions of dollars in sudden, automatic federal spending and tax changes scheduled to occur at midnight this New Year’s Eve.
Prominent among those changes is the expiration of income tax cuts passed in the early years of the Bush administration.
How do the Bush-era tax cuts stack up when we look at which taxes will be cut, whose taxes would be cut, and at what cost?
These cuts were structured in a way that disproportionately aids the wealthy and have added hundreds of billions of dollars to our national debt.
At the same time, given our still-fragile recovery, it’s important not to raise taxes on the middle class by allowing all of the cuts to expire.
The fact is that while tax breaks for the top 2 percent haven’t brought our economy back or helped the rest of us find a job, tax cuts for the middle class have gone right back into the economy to pay for our children’s college tuition and our grocery bills.
We need to compromise.
The cuts should be extended for the 98 percent of American families with annual incomes of $250,000 or less. The cuts for the top 2 percent of households, however, those earning more than that, should be allowed to expire and fairer, Clinton-era rates should be restored.
If Congress agrees to this, we will generate more than $1 trillion in revenue over the next decade. That money can be used to reduce our debt and financially strengthen Social Security, Medicare and Medicaid, without the disastrous benefit cuts and promise betrayals advocated by some politicians.
Sens. Olympia Snowe and Susan Collins can make this compromise happen. They can be leaders in forging a bipartisan budget deal that makes slightly higher taxes on the wealthy a central component of any deficit-reduction plan.
That is the kind of change in tax rates that passes the test of serving the middle class.
Don Berry is president of Maine AFL-CIO, Augusta.