“The bigger things get, the better the small scale wisdoms apply”. That’s my poetic license on the “More things change….” folk wisdom that most of us
apply to our everyday lives. In this case, I’m applying it to the TAX CUT mythology of our present administration and how it dovetails with the record
DEFICITS we and our children are being forced to endure.
While none of us would go on a massive shopping spree on Tuesday if we were laid off on Monday, that, in essence, is what has happened with our
government: ideological tax cuts that benefit the top tier income earners + corporate tax revenues slashed or abolished have cut the federal operating
budget, while massive increases in spending have pushed us to historic height of deficit…..with no let up in sight.
To start, we will examine what the current administration had inherited, what they’ve implemented, how it was marketed, where the reality of those
actions diverge, and finally, the remedies being proffered by the Kerry team.
INHERITED: This president inherited a record budget surplus of $236 billion in 2000 and a projected surplus of $5.6 trillion over ten years & an
economy that generated an average of three million jobs a year during the two Clinton administrations.
Congressional Budget Office
CLAIM: “The government has taxed too much, it’s your money” – George Bush.
ACTION: 1st round of tax cuts. Later, in a 2nd round, he advocated tax cuts as a way to boost the economy in a recession. It is not clear how these
two claims are consistent, nor is it evident what economic philosophy would support such claims; meaning, opposite outcomes are expected from the same
· Last year's deficit reached $375 billion, breaking the record of $290 billion set under President Bush's father in 1992.
· CBO projects that the record will be broken again this year, with the deficit climbing to $477 billion.
· The $5.6 trillion surplus CBO projected three years ago is now a $2.9 trillion deficit over that same decade, a $8.5 trillion reversal. The reversal
climbs to nearly $10 trillion if you include the impact of the President's proposal to make his tax cuts permanent.
· We have gone from saving the entire Social Security surplus to spending every penny.
· The $5.6 trillion surplus that Bush inherited would have allowed us to essentially eliminate the public debt by 2008. Instead, CBO now projects that
we will have $5.6 trillion in debt held by the public at the end of that year.
CLAIM: "91 million taxpayers received, on average, a tax cut of $1,126. Since the President took office, 109 million taxpayers have received, on
average, a tax cut of $1,544. Without the fiscal measures implemented under President Bush, there would be as many as 2 million fewer jobs for
American workers today."
RESULT: 80% of taxpayers would receive less than $1,083, and half would receive $100 or less. The handful of millionaires who would get about $90,000
artificially inflates the average.
Citizens for Tax Justice
Center on Budget & Policy Priorities
The average tax cuts Americans received in the past three years were more than offset by
cost increases elsewhere, especially for such priorities as housing, medical care and
higher education. Moreover, the vast majority of taxpayers received less than the average
tax cut. And all of this happened at a time when millions of new jobs – the promised
benefits of the tax cuts – have failed to materialize. By any measure, the short and long term costs of the tax cuts outweigh any of its purported
To get a better idea of what the Bush tax cuts mean in real terms, taxpayers not only
should look closely at their tax filings, but also at their overall expenditures. When they
do, they will see that the Administration’s three tax cuts came at the expense of funding
many essential programs, for which the taxpayer is now footing the bill. These tax cuts
came at a time when housing, education, and medical costs, among other items, rose
sharply. In fact, the cost of these three items alone rose twice as much as the average
taxpayer received in tax cuts. 8% of the tax cuts translated into increased spending in
higher education, more than 80% for higher housing costs, and 130% for greater health
Center for American Progress
Add to this very bleak picture the fact that a record number of municipalities & states are teetering on bankruptcy because of the lack of funds from
the Fed, thus causing a skyrocket increase in everything THEY CONTROL ( school tax, property tax, booze tax, retail sales tax, etc.) , and a ‘tax
burden’ on the middle class is an understatement.
INHERITED: GAO: “ Most corporations do not pay taxes, and of those that do, 95% pay less than 5 percent of their income in taxes.”
Current tax laws allow companies to defer paying U.S. taxes on income earned by their foreign subsidiaries, providing a substantial tax break for
companies that move investment and jobs overseas. Today, under U.S. tax law, a company that is trying to decide between locating production or
services in the United States or in a foreign low tax haven is actually given a substantial tax incentive not only to move jobs overseas, but to
reinvest profits permanently, as opposed to bring them back and re-invest in the United States.
ACTION: The preamble to individual tax relief is to identify & remedy the billions lost at the corporate level FIRST:
• Eliminating deferral so companies are taxed the same whether they invest abroad or
at home. John Kerry will eliminate all of the complications in the current Subpart F
regime and replace them with a simple system: companies will be taxed on their foreign
subsidiaries profits just like they are taxed on their domestic profits. The new system will
apply to profits earned in future years – it will not be applied retroactively to profits
already earned abroad.
• Promoting America’s competitiveness in a global economy. The Kerry-Edwards plan
will allow companies to defer the income they earn when they locate production in a
foreign country that serves that foreign country’s markets. This will ensure American
companies can compete in international markets. For example, if you want to open a
hotel in Bermuda, a bank branch in Shanghai to service the Chinese market, or a car
factory in India to sell cars in India, you can still defer your foreign income. But if you
open up a call center in India to answer calls from outside of India or re-locate abroad to
sell cars back to the United States or Canada you must pay taxes just like call centers and
auto manufacturers in the United States.
• Close abusive international tax loopholes. John Kerry is proposing to end abuses that
allow American companies to escape taxes by taking advantage of complicated
international tax rules. These abuses include “corporate inversion” where an American
company moves its headquarters to a tax haven like Bermuda to avoid taxes, certain types
of cross-crediting that encourage companies to shift income and jobs to low-tax havens,
restricting tax avoidance through hybrid structures, and other abuses.
ACTION: Cut Corporate taxes to stimulate economic growth
• Cut the corporate tax rate by 5 percent. The Kerry-Edwards proposal will not increase
the deficit or corporate taxes by one dime. All of the savings from ending tax breaks will
go towards lowering the corporate tax rate from 35 percent today to 33.25 percent – a 5
• Cutting taxes for more than 99 percent of taxpaying companies. By ending tax
incentives to move jobs overseas and using those funds to lower the corporate tax rate the
Kerry international tax reform will increase investment and hiring by American
companies. An analysis of IRS data shows that more than 99 percent of corporations
paying corporate income taxes would see their taxes reduced by the Kerry-Edwards
• Lowering the tax differential with foreign countries. The tax differential between
U.S. corporate rates and foreign corporate rates have grown over the last two decades.
The Kerry-Edwards proposal would begin to narrow that gap again.
The Kerry-Edwards One-time Holiday to Encourage Companies to Reinvest their Foreign
Profits in America: The Kerry-Edwards plan will unlock billions of profits that are stuck
abroad, encouraging American companies to bring their profits back to America and re-invest
them to jump-start the economy. This holiday will work to increase investment because it is part
of a comprehensive plan to transition to a new system that eliminates deferral and the associated
incentives to keep profits overseas.
• More than $639 billion of American profits are stuck abroad. At the end of 2002
American companies were keeping $639 billion in profits abroad, avoiding having to pay
taxes on this money. This is up sharply from $403 billion in profits in 1999. [CRS, “Tax
Exemption for Repatriated Foreign Earnings,” 10/22/2003]
• Encouraging companies to bring that money back to America with a one-year, 10
percent tax holiday. The Kerry-Edwards plan will encourage companies to bring that
money back and invest it in the American economy. For a one-year period only, John
Kerry will provide companies with a special low rate of 10 percent on any profits they
reinvest in the United States for companies with a domestic reinvestment plan. This rate
will only apply to repatriations in excess of average repatriations over a base period.
• Increasing investment. By ending future incentives to keep profits abroad and
combining this with an appropriate transition that provides a one-time tax holiday this
would increase investment and stimulate the American economy, helping to re-start job
• Paying for the New Jobs Tax Credit. The tax holiday would result in an immediate
revenue gain which would offset much of the cost of the New Jobs Tax Credit – another
boost to job growth in America.
RESULT: A cut in Middle Class taxes while experiencing, per above, a dramatic increase in job creation, thus expanding the tax base & spurring
consumer consumption. With this comes a proposal of At Least $250 Billion In Tax Cuts For Health Care, Child Care, and Education. By closure of
corporate tax loopholes and use some of the money gained from repealing Bush's tax cuts for the wealthiest Americans - families making over $200,000
a year - to pay for tax credits without increasing the deficit by one dime. The Kerry-Edwards tax cuts include:
· A tax credit on up to $4,000 of college tuition
· A tax credit to help small businesses and vulnerable workers pay for health care and buy into John Kerry's new Congressional Health Plan.
· A tax credit on $5,000 of child care expenses
Create a New Jobs Tax Credit. Research has demonstrated that new jobs tax credits increase employment. The Kerry-Edwards New Jobs Tax Credit will
cover an employer's share of payroll taxes for net new jobs created in manufacturing, other businesses affected by outsourcing, and small businesses.
The credit will be available in 2005 and 2006. For example: a medium-sized manufacturing company employs 1,000 workers. If this company hires an
additional 100 employees at $40,000 each - bringing the total number of employees to 1,100 - it would receive a tax cut of 3,060 per worker, or
$306,000 total. This would roughly offset the additional cost of health care premiums, which have risen about $2,700 under President Bush.
I’ve found the Kerry plan to be sound, taking a top down view to recapturing lost operational revenues, while at the same time spurring growth.
John Kerry Website
[edit on 8-8-2004 by Valhall]