Monday, December 12, 2005

A Shameful Bargain

As we slouch toward the Holiday Season, it's time to total up the various deductions and dodges available to those who make enough money to take advantage of them.

Meanwhile, Congress seems once again in a giving mood. Call it Christmas if you like.

A House tax bill is bent on extending capital gains and dividend tax cuts, which primarily benefit those who don't need to work for their living. The Senate is looking out for the middle-class taxpayers who are increasingly subject to a provision of the tax code designed to ensure the rich pay at least some income taxes. Its bill continues temporary relief from the Alternative Minimum Tax (AMT).

Neither bill includes the other's provision, but rather than a collision in conference, former Labor Secretary Robert Reich predicts a more likely outcome:

Here's betting the Senate and House will compromise by extending the dividend and capital gains tax cuts and cutting the AMT. It's an elegant compromise, of the sort Washington is skilled at making. There's only one problem. With it, the budget deficit will explode even more.

The underlying question is, who ends up paying for Iraq, the Katrina cleanup, the Medicare drug benefit, homeland security, everything else? If the House has its way, it won't be the super-rich, who will get their capital gains and dividend tax cuts extended. If the Senate gets its way, it won't be the middle class, who would otherwise be hit by the AMT. If the House and Senate compromise by giving both groups what they want, there's only one group left.

Yes, of course.

The only way to fight the deficit is to continue cutting programs, and it would be ideologically inconsistent to cut programs that benefit the rich and middle class.

This behavior is bipartisan, and it extends back to previous administrations. For example, over the past decade, the IRS has significantly shifted its audits away from those with the highest incomes. Given that a successful audit on a high earner is likely to recapture more tax dollars, this seems a curious redeployment of resources.

Unless your goal is to punish even further the people scraping to get by.

I'm one of those fortunate Americans who has benefitted most from America's prosperity — and who will benefit even more from the hands-off-the-better-off trend in government. I'm ashamed to be complicit in pushing the poor ever deeper in the hole and pushing the deficit off onto my grandchildren.

But not so ashamed that I refuse the tax breaks coming to me. I'd be a fool not to take what the law entitles me to, right?



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