The Republican Budget Plan: He Who Has, Gets
by David Morris
July 5, 1997 – published in St. Paul Pioneer Press
I don’t want to accuse the Republicans of engaging in class warfare. Really. But when I look at their tax and spending policies I am hard pressed to figure out what else to call it.
The facts speak for themselves. Look first at the bottom of the economic pyramid. Last year, the Republican Congress slashed federal spending. An assessment by the Center for Budget and Policy Priorities found that the poorest 20 percent of the population bore about 65 percent of the pain from health, welfare and other cuts.
That Congress ended the federal commitment to the poor. Welfare recipients were forced to find jobs that many analysts predict do not exist. A few months ago the Department of Labor concluded that welfare beneficiaries in public work jobs are covered by the Fair Labor Standards Act (FLSA) and must be paid the minimum wage. To most of us that ruling was both obvious and just. To Republicans it was an outrage. Soon they will enact legislation to allow the poorest of us all to be forced to work at wages as low as $1.25 an hour!
Moving up a step on the income ladder, we reach the vast numbers of people who are working full time but earning poverty wages. A centerpiece of the Republican tax proposal is a $500 per child tax credit. But the tax credit is not available to those who don’t earn enough to pay income tax. Twenty eight million children will receive no benefit.
As we move from the bottom to the top of the economic pyramid, the Republicans’ miserliness is transformed into the most unmitigated generosity. Indeed, the essence of the Republican tax and spend policies seems to be, “Them that has, gets.”
From 1977 to 1994, according to the Congressional Budget Office, them that has have done very well indeed. After tax annual income of the wealthiest one percent of families grew by some $200,000, an increase of 72 percent after adjusting for inflation. After tax income of the poorest 20 percent, on the other hand, declined by 16 percent.
The Center on Budget and Policy Priorities and Citizens for Tax Justice examined the combined impact of the 1996 and 1997 budget provisions. They discovered that in large part because of the doubling of the estate tax exemption and the reduction in the capital gains tax rate, the after tax income of the richest 1 percent of Americans, those earning on average $440,000 a year will rise by $27,000. After tax incomes of the bottom 20 percent will fall by $420. The collective income of the poorest 20 percent of the population will decline by $9.2 billion. The collective income of the richest 20 percent will rise by $59 billion.
These Republican tax cuts for the rich are gifts that keep on giving. Their tax plan will cost the Treasury $250 billion in the first ten years and $700 billion in the second ten years. As the deficit widens because of these soaring tax incentives to the rich, the budget agreement will force Congress to cut spending. Guess what part of the economic pyramid will feel the pain of those cuts most quickly? Poor children, their parents and the elderly.
The Republican’s class bias shows in many ways, both big and small. For example, they refuse to index the minimum wage or the child tax credits. That means that as inflation rises the value of those benefits will decline. But they insist on indexing capital gains. If the cost of living goes up, those who own stocks and bonds will benefit. Those who earn their income from the sweat of their brow will not.
And then there are the Republicans’ truly elegant touches. Like the permanent exemption from the 24 cent per gallon federal tax on diesel fuel for recreational boats, a tax break which will save $120 each time a yacht owner fills ‘er up. How fitting that the same Republican Representative from Florida, Clay Shaw Jr. who helped end the federal commitment to the destitute and who is leading the fight to allow states to pay subminimum wages to its poorest workers, is leading the crusade to exempt the very rich from diesel fuel taxes.
Perhaps one should expect nothing more from a Congress whose average member is part of the very class that will benefit the most from Congress’ tax and spending cuts. But I hope in my heart of hearts that Congress and the President can rise above their class interest and fashion a budget plan fair for all. Am I dreaming?
David Morris is vice-president of the Institute for Local Self-Reliance