As Congress moved closer this week to making President George W. Bush's promises of a sweeping tax cut a reality, agreeing to push through an 11-year $1.35 trillion reduction, economists on all sides of the ideological spectrum have scrambled to insert their views into the policy-making process.
At Dartmouth, Economics Professor Jonathan Skinner has made the case that failing markets will dampen the projected surplus and people will receive less money in tax refunds than they may think.
Skinner, who injected himself into the often bitter debate over Bush's tax cut in the April 12 "Christian Science Monitor," recently elaborated on his ideas in an interview with The Dartmouth.
Although a common belief may be that the tax cuts are an effort to pull the country out of the current economic downturn, Skinner said that such an objective was not on the president's mind, nor is it a definite effect of the cuts.
"The tax cut is backloaded, so that the bulk of the money comes later when we may be in a boom or a recession," Skinner explained.
The President's logic, according to Skinner, is that the surplus of money during Clinton's administration was being spent on unnecessary projects.
"If you leave money floating around in Washington, it gets spent," Skinner stated in clarification of Bush's view of the economy.
As the President discussed the possible cuts Tuesday, he expressed his concern with Washington spenders.
"I'm absolutely convinced we'll be able to fund the tax cuts," Bush said. "I suspect I am going to have to remain diligent over the next year to keep the spenders in check."
The proposed tax cuts could come in the form of an income tax break, and, if Bush gets his way, an abolishment of the estate tax, a proposal sharply opposed by most Democrats.
Although many Democrats consider the possible new income tax rates as unfair and harsh on the middle class, Skinner instead argues that "Fairness is in the eye of the beholder."
The income tax cut, Skinner says, can be viewed in one of two ways. It can be viewed in terms of dollars, a view that leads to the conclusion that the rich will benefit the most from this break. Or the cut can be seen in terms of percentage of income, making the cut look equally appealing across income brackets, he says.
The possible abolishment of the estate tax, however, cannot as easily be argued as a "fair" tax break, according to Skinner. While the current estate tax of 55 percent may be too high, Skinner said, a zero percent estate tax would be too low.
This proposal faces major legislative hurdles because of a lack of support even from many of the country's most wealthy individuals, those that would receive the greatest windfall from an a repeal of what proponents call the death tax. The opposition of famously rich individuals has taken some steam from Bush's plan.
In the end, Skinner writes in the Monitor, there probably won't be much money to give back to the people after the tax cut anyway.
Skinner concludes that the economic projections on which the Bush administration is basing its plans may be too rosy.
"The Senate's proposed $1.2 trillion tax reduction is scheduled to be funded out of the surplus projected for the next decade. Can we count on those surpluses actually happening?" Skinner asks.
