A decade and a half ago, the federal government was running a surplus, the economy was humming along, poverty had continually declined for the previous seven years, and the Republican candidate for president essentially told the nation we could cut taxes and maintain the status quo.
Today, the Republican-led Senate Finance Committee held a hearing on tax fairness featuring none other than Larry Lindsey, the architect of the Bush tax cuts, as the chief witness. This is quite alarming since the Bush tax cuts did more to undermine tax fairness and adequacy than any other legislation since 1981. The nation is still reeling from its effects.
It may be hard to believe now, but when then-presidential candidate George W. Bush put out his tax plan, in late 1999, Lindsey argued that the proposed tax cuts would make the tax system fairer.
“Governor Bush’s tax cuts would reduce income taxes for all Americans,” he said, “but would especially benefit lower and middle-income families. . . . More affluent Americans also receive a tax cut, but they will also shoulder a larger portion of the federal income tax…. The result is an income tax burden that is fairer.”
But this was pure sophistry. The Bush/Lindsey plan was designed to lower the progressive personal income tax while leaving untouched other, more regressive taxes levied by the federal government. Since these other taxes, including payroll and excise taxes, capture far more income from working low-income families, reducing their relatively low personal income taxes didn’t make much of a dent in their overall federal tax load. But because the personal income tax is the primary federal tax paid by the best-off Americans, even a 10 percent cut would dramatically reduce their tax bill. Put another way, the Bush tax cuts resulted in the best-off Americans paying a slightly smaller share of a much smaller pie, with close to half of the tax cuts going to the best-off one percent.
Lindsey also used gimmicks to make the Bush tax cuts look far less expensive than they actually were. When Bush announced his plan, Lindsey and others pegged the 10-year cost at $1.3 trillion. But, as CTJ’s tax policy team discovered, it turned out that Lindsey’s policy team had found a way to shave hundreds of billions off the apparent cost of the Bush plan by designing it in a way that would force 20 percent of Americans to pay the Alternative Minimum Tax (AMT), a backstop tax designed to prevent tax-dodging by high-income Americans. So, Bush proposed to dole out large tax cuts to almost, but not quite rich families, and then quietly take a big chunk of them back through the AMT.
Of course, no one thought for a minute that Congress would actually allow the AMT to swallow the upper middle class, and in fact, Congress fixed that problem soon after it passed the Bush tax cuts. But this ruse helped Lindsey and the Bush administration to low-ball the cost of their tax plan by about 25 percent.
In addition, many of Bush’s proposals were to be phased in over half a decade or more, the full impact of the tax cuts on federal revenues was muted. But in 2004, the phase-ins were sped up. As a result, the supposed $1.3 trillion ten-year tax cut turned out to cost twice as much as originally billed.
Maybe Senate Finance Committee Republicans are looking to Lindsey to help them repeat the chicanery that helped get the Bush tax cuts enacted. If so, everyone should be worried, since he was very good at hiding the truth back then.