ataxingmatter

President's FY 2008 Budget and the AMT

Ruth Marcus writes about "Bush's Stealth Tax Increase" in the February 7, 2007 Washington Post.  Her first line is an attention-getter:  "Even President Bush acknowledges that he can't balance the budget without raising taxes."  She's bringing into the open the inconsistent, misleading and inherently hostile to middle-and-lower income taxpayers rhetoric of the FY 2008 budget about the AMT. 

As noted in my earlier posting on the FY 2008 Budget proposal, it retains the AMT, providing just a one-year patch, yet again, in spite of Treasury Secretary Paulson's considered opinion that the AMT is "a cruel tax".  The AMT could be repealed, but that is a huge budget hit that nobody really thinks can be done easily.  The AMT can and should be reformed, as I and others have suggested, through a combination of higher exemption levels with preferences for capital gains and some adjustments to remove unnecessary differences between the AMT and the regular tax.  That is a reasonable solution that retains the valuable aspects of the AMT (getting high-income taxpayers to pay a fairer share, including taxes on their capital gains that match the taxes that workers pay on their wages) while eliminating the unfair, burdensome and simply wrong-headed aspects of the AMT (a complicated system that increasingly reaches down into the ranks of ordinary taxpayers to subject them to an unnecessary surtax that takes away the only good aspect of the 2001-2006 revenue reduction bills--namely, a tax break for ordinary taxpayers).  But the AMT simply cannot be left to continue floundering along with its heavy-handed hit against people just above the middle and its ability to dip down unexpectedly and capture more income from those right at the middle (in the $50,000  income range).

Of course, the unspoken truth of the Bush budget is that it only is able to achieve its purported balance (I say purported because I have strong doubts that the various necessary assumptions--including assumptions about growth, about continued record corporate tax revenues, and about the de-prioritizing of domestic expenditures in order to increase military spending by 23%--will actually be realized) by intentionally NOT fixing the AMT and having that extra $1 trillion of dollars available to use to hand the keys to the kingdom over to those who most benefit from the 2001-2006 tax cuts--the wealthy and owners of corporate capital.

As Ruth Marcus ably notes, "[i]f [Bush] means, as he says and nearly everyone agrees, to fix the AMT, that revenue has to come from somewhere [other than the working poor and the possible remedies for the tax gap left by non-compliance]."

That leaves the middle class, the better-off and corporations to divvy up the tab. In that context, does it really make sense to permanently repeal the estate tax? To leave in place lower tax rates for the richest Americans? To continue to tax capital gains and dividends at far lower rates than ordinary income? These are the choices that the Bush budget entails, even if it fails, deliberately, to spell them out.

Hubbard's Ghosts

Glenn Hubbard's op-ed in the April 17, 2006 Wall Street Journal at A16 admits that the increasingly worrisome deficits of the Bush Administration will require either tax increases or reductions in safety net supports we provide to the elderly, the poor, the orphaned and the sick.  Needless to say, he doesn't support tax increases.

He uses the Tax Foundation's concept of "tax freedom day" in the very way that the Tax Foundation says it was not intended to be used--to talk about the "day this year that taxpayers on average stop working to pay their tax obligations and begin earning for their own spending."  Having raised the specter before ordinary Americans of having less control of their "own" money, he suggests that the nation cannot afford to pay for Social Security and Medicare in the future.  It would mean larger government, which he claims is necessarily associated with lower growth, and lower growth would mean a lower standard of living and stifling of innovaction.  (What he doesn't cover is the fact that lack of Social Security for the elderly, lack of medical care and lack of other benefits would certainly result in lower standards of living for ordinary Americans and perhaps have an even more dramatic impact on economic growth.  It was, in fact, the period after World War II when we created Social Security and Medicare and brought many elderly and poor into the productive economy that this country experienced an enormous economic boom.)

Having called forth the specter of large government, Hubbard considers how to avoid it.  His solution is to cut entitlement programs like Social Security and Medicare. He does not acknowledge studies, such as those discussed by Paul Krugman, that show that we could provide health care at a much cheaper cost by creating a universal single-payer system and we could save even more with a single-provider system, like Canada, the UK and almost every other developed country in the world.  Instead, he wants to privatize all of these current programs with "incentives" for Health Savings Accounts, wise consumption of health care services, and "saving for the purchase of true health insurance at old age."

This prescription for Christmas future sounds like the ghosts of Christmas past.  Incentives for Health Savings Accounts remove those funds from the income tax system and increase the deficit.  HSAs are most likely to be employed, as discussed in other postings, by those who are healthiest and wealthiest. HSAs will not be adequate to deal with the real cause of rising health care--those who have serious illnesses that require expensive diagnostic testing, hospital stays, and modern drug and surgical treatment.  Health Savings Accounts mainly provide a tax-free route of saving for wealthier individuals who would save anyway.   

What about incentivizing more efficient use of health care?  This market solution to health care costs simply doesn't acknowledge the way health care works.  People can comparison shop, to some extent, for preventative care, although even in that case there are often only a few practitioners who are accepting patients or who are willing to treat lower-income patients and thus choices are limited.  But when it comes to specialized care--from dermatology to heart or cancer treatment--it is almost impossible for ordinary people to know how to choose among providers or to have the luxury of choosing among providers.  Location, population and many other factors determine who is willing to serve.  Health care is not like taking a lawn mower in to be repaired.  Doctors cannot tell a patient a price for treatment beforehand, and often the testing itself is terribly expensive.  Patients don't have the choice of tossing out the old machine and just buying new if the repair is too expensive.  And patients ought not to be forced to settle for inferior care in order to save money when their lives are at stake.  The ability of a consumer in health care to "shop wisely" and lower health care costs is extraordinarily limited.

And what about "saving the purchase of true health insurance for when it is needed"?  That invites a spiraling increase in the cost of health insurance.  Insurance works when the risk of loss (health care needs) is spread over a large and diversified group for which one can expect that some will need care but most will not need care and some of those who need care will need expensive care but most will not.  If health savings accounts were to replace insurance for young people and well people and insurance were reserved only for those who needed it because they expected higher health costs, insurance costs would skyrocket and coverage would diminish.  The elderly who would depend on insurance for their needs (because they could no longer set aside HSAs and would not have sufficient in those HSAs set aside earlier to cover catastrophic needs) would find themselves left high and dry without medical care.

The better answer--universal health care with the national government as health care provider.  What does that mean for tax purposes?  Toss the idea of HSAs and forget about creating expensive incentives through the tax system for encouraging people to shop wisely for health care.

Having raised the specter of big government and then purportedly evicted it by cutting Social Security and Medicare down to size through privatization achieved with tax programs that provide incentives for savings, Hubbard goes on to talk about the kind of tax system that will best achieve growth.  Hubbard mentioned "fairness" almost as an aside at the beginning, but it figures almost nowhere in his discussion.  He claims that his concern is to focus adjustments on middle and upper income workers (whether on the spending or tax side).  But his formula for tax reform would benefit most the extraordinary wealthy, and his formula for entitlement reform would put the risk of loss onto workers young and old.  (He conveniently talks about "workers" throughout that section, since of course those who've inherited their wealth and receive their income from capital would not bear any of the burden under his formula.)  His formula for tax reform is stated in one sentence.

Tax reform to promote growth should keep marginal tax rates low and remove (or at least sharply reduce) tax biases against saving, investment and risk-taking.

For Hubbard and others who are promoting zero taxes on the capital income of the wealthy, the income tax is always cast as having a "bias[] against saving, investment and risk-taking."  Of course, they do not mention that the tax system they prefer--a consumption tax system of one sort or another--has a bias against spending, working to earn a living and taking risks as an employee without power in a system dominated by tycoons and oligarchs.  An income tax doesn't favor either saving or spending, but a consumption tax favors saving.  The wealthy can save most of their income, and the poor and middle class must spend most of their income.  Thus, the rhetoric about the need to increase saving is also about the desire to reduce taxes on the wealthy from their current level and shift the tax burden to workers.  Similarly, the statement that marginal rates should stay low is a statement against meeting our government obligations (including paying off the immense debt from the years of tax cuts) through enhanced progressivity in the tax system. 

Hubbard assumes that economic growth is a per se good.  Yet economic growth can take place across a broad spectrum, as it did in America in the Post-WWII years or it can take place within a very narrow band, as it has under the Bush Administration.  Economic growth accompanied by increases in inequality may in fact be a bad omen for sustainability of growth, as class mobility stalls, spending by the broad base of ordinary Americans declines, and the gains from productivity are realized only by those who own the plants and not by those who work in them.  Adequate safety nets like Social Security and Medicare--or, even better, a universal health care system--may be essential to sustained growth over the long term.  The best tax reform to achieve that kind of broad-based growth may well be enhanced progressivity, not lower marginal tax rates.

New Year Finds Increasing Deficits, Income Gap and Health Care Gap

Two studies were announced last week, both bringing bad news for ordinary Americans.  The insights from those studies was confirmed in the rough and tumble dysfunction of the new Medicare drug program for the neediest recipients. There may well be something to learn from all of this, as Congress looks to the new year.

The Congressional Budget Office announced Thursday that red ink will flow into the next decade if the Bush tax cuts are made permanent at a cost of $2.6 trillion for the decade.  Its study, Budget and Economic Outlook: Fiscal Years 2007 - 2016, summarized here, projects a budget of $336 billion for 2006, or 2.6% of GDP.  When projected needs for the military occupation of Iraq and Afghanistan are added in, as well as additional flood insurance payments related to the last fall's hurricane season, the CBO projects a deficit for 2006 in the range of $360 billion.  That means that government borrowing --already over $8 trillion (including funds borrowed from the Social Security trust fund--will have to increase even more to finance the deficit and any additional tax cuts the Congress may ultimately enact this year, adding to the debt burden of future generations.  Kent Conrad, a member of the Senate Budget Committee, told the Wall Street Journal that this Congress has been "the most fiscally irresponsible in our nation's history." 

The Center on Budget and Policy Priorities, in a study entitled "Pulling Apart", available here, looked at the state by state income gap between the wealthiest families and those at the bottom.  It found a steady widening of the gap from the early 1980s to the early 2000s.  Although there was some decline in inequality at the turn of the century, by 2003 the wealthy were again rapidly leaving the poor behind.  Those at the top, who generally are the primary owners of capital wealth, generally benefited from the rebounding stock market. Those at the bottom, who generally work for wages in jobs that are particularly vulnerable to slowdowns in the economy, suffered most in the recent recession and have continued to be affected by the slow recovery to the jobs sector.  In thirty-eight states that showed a widening gap, the income of the richest grew by an average $45,800 or 62% while the income of those at the bottom grew by an average of only $3000 or 21%.   Even within the top quintile of well-to-do Americans, the top 5% saw their income grow much more rapidly than the remaining members of the quintile.  A significant cause for the decline, according to the report, is the law wages earned by the 70% of workers without a college education, outsourcing, low-wage service jobs, and the weakening of unions.  Workers at the bottom are struggling against a decline in the real minimum wage, while capital owners at the top are enjoying extraordinary growth in wealth from increased productivity of workers that remain.

These data are particularly telling when individual states or districts are considered.  In the District of Columbia, the average income of the poorest groups increased in two decades by only $382, from $12,321 to $12,703.  At the same time, the best off saw their incomes increased by a whopping $70,362, or about $3,350 a year.  See the statistical sheet for DC. Similar figures are available for other areas at this link.  And see the analysis by Citizens for Tax Justice at this link.  As noted by Ed Lazere at the D.C. Fiscal Policy Institute in a report on the study by the Washington Post, "It seems pretty clear that there's a large group of disadvantaged residents in the city who aren't getting the help they need to move up the economic ladder, whether it be education or training or other supports."  D'Vera Cohn, Separation Between Rich, Poor Widening in DC, Jan. 27, 2006 Wash. Post.  Lazere points out the need to increase skills for the city's residents, since most are working but simply cannot earn enough at their jobs to move ahead.  Id. 

These income distribution statistics are confirmed by an IRS study that looks at income and tax rate trends.  See, e.g., Michael Strudler & Tom Petska, Further Analysis of the Distribution of Income and Taxes, November 2004 (revised 2005).   The authors examine trends in the distribution of incomes and tax burdens based on a "retrospective income concept" that attempts to make the income measure both comprehensive and consistent over time by including the same income and deduction items for the years studied.  The income measure includes capital gains, unemployment compensation, pensions and annuities, but does not include social security benefits because they were not reported when the system was first developed.  The study predictably finds that "[w]hile all of the income thresholds have increased over time, the largest increases in absolute terms, and on a percentage basis, were with the highest income-size classes."  Id.  An American would have had to earn more than $233,000 to be in the top 0.1% bracket in 1979, but more than $1,278,000 in 2002--a 400% increase.  The increase at the bottom was only 130%. Thus, the fact that those at the top pay higher average tax burdens is not surprising--"an increasing proportion of income has shifted to the upper levels of the distribution where it is taxed at higher rates."  Id. The Strudler & Petska study also demonstrates just how much the highest-income Americans have been benefited by the Bush tax cuts.

The highest income group winds up paying an average tax that is less than all of the groups above the 20-to-40 percent class. Under the new laws, the 0.1-percent group would pay average taxes that are 3.19 percentage points less than the 1-to-5 percent income group, 2.91 percentage points less than the 5-to-10 percent income group, and 1.24 percentage points less than the 10-to-20 percent group. In fact, under the provisions of EGTRRA/JGTRRA [the 2001 and 2003 tax cut bills], individuals in the 0.1-percent group wind up paying less than one percentage point (0.99) more than the 20-to-40 percent income group. In contrast, the highest income group paid average combined taxes that were 12.03 percentage points higher than the 20-to-40 percent income group in 1979 and 4.29 percentage points higher than this group underexisting 1999 laws.  Id. (emphasis added).

Couple these disturbing trends with two other pieces of information.  First, with the new drug program in Medicare coming on line, millions of needy Americans were simply assigned to drug plans.  Although they had been receiving their medications directly through government programs, they are now expected to navigate the complex, confusing and ultimately unsatisfactory system of private providers that is causing this nation's elderly such anguish as it gets off the ground.  Regretably, it turns out that nearly one-third of impoverished Americans were enrolled by the government in Medicare plans that refuse to cover 15% of commonly used drugs.  The agency insists that they will be covered since a therapeutically equivalent alternative of medically necessary treatments must be covered, but many of those having problems are the most vulnerable who may have trouble navigating well-understood situations, much less the labyrinth of the new prescription drug program.  They may simply not know where to turn, and lack of coverage of their 'brand" may require another visit to a physician to get a prescription for a covered equivalent.  See the story in the Jan. 28 Chicago Tribune.   At any rate, the prescription drug plan experience in the "comparison shopping" of Bush's ideal health care market is so far a very unsatisfactory one.  It just may be that finding the right doctor to treat you when you are sick or even chronically ill doesn't work the same way finding the right supplier of the tile for your bathroom floor, in spite of Bush's view that health care competition is the "cure" for the lack of accessible health care for millions of Americans.

Meanwhile, the veterans' health care system has worked to improve its care since the 1980s and has emerged as a leader in high quality care, according to an annual survey conducted by the National Quality Research Center mentioned by Paul Krugman in his Jan. 27 New York Times Op-Ed.  As Krugman notes, the VHA's success story suggests that a "government agency can deliver better care at lower cost than the private sector."  Id.  Maybe it is time we really looked at the places that privatization works and does not work.  Universal health care, funded by tax revenues and provided through a government system of hospitals and clinics, may be the answer we have avoided for far too long. 

Can we really watch the poor get poorer and the rich get richer (and pay less taxes to boot) and still justify our failure to provide universal health care for those who need it?  I think not.  We should act now to create a single-provider health care system that puts medicine to the service of the people.

Rohatyn & Rudman's "National Investment Corporation"

One of the most disturbing aspects of the current budget and tax legislation process in Washington is the lack of creative thinking about long term problems.  There is considerable political posturing in the Senate and House budget bills.  Each chamber pretends to pay attention to the ongoing, record-breaking pattern of deficits and accompanying record borrowing that will be repaid by tax increases (or standard of living decreases) for future generations.  They have proposed to cut back on programs like Medicaid, child support enforcement, and student loans--ones that generally have constitutents that are least able to organize to explain to Congress the dramatic impact of small changes in federal funding on their daily lives.  The purported "deficit reduction" legislation, however, exists side-by-side with plans for huge new tax breaks that will reduce government revenues by considerably more billions than the budget legislation accounted for.  In addition to various unneeded tax breaks for business (such as the extension of excess depreciation), the House proposes to extend the millionaires tax break on capital gains and dividend income.  To top it off, the plans disregard the true costs of the continued occupation in Iraq--military/security spending these days is treated as entitlement funding by both the Pentagon and corporate contractors that feed at the Defense trough with the assistance of no-bid contracts and friends in high places. 

All in all, it seems the budget and tax legislation processes as currently practiced are bankrupt of fresh ideas, heavy on short-sighted thinking, captured by special interests, and short on recognition of long-standing problems.   Two issues cry out for government attention:  universal access to education and health care, and infrastructure maintenance and rebuilding.  The first is central to quality of life for all Americans and should be a primary focus of funding with taxpayer dollars.  Without a healthy and educated citizenry, economic growth is unsustainable.  We should be finding a way to endow each and every American with sufficient human capital to function as vigorous, entrepreneurial citizens in the twenty-first century; instead, we are throttling human capital development by funding lenders' huge profits rather than students' direct loans and giving pharmaceutical companies bigger tax cuts through more research and development expensing while providing inadequate funds for independent university research and expecting sick and poor Americans to pay more out of their meager incomes for what little health care we provide.  While Europe and Japan invest in the future, the Bush tax cuts have starved the government of  federal funds for vital infrastructure projects--to (re)build and protect schools and universities, fast intercity rail lines and more secure ports, better bridges and levees, and renewed Gulf marshes and heartland prairies.   

One idea for dealing with the $1.6 trillion of delayed infrastructure projects in this country has been proposed by Warren Rudman and Feliz Rohatyn--a "national investment corporation" that could issue long-term bonds guaranteed by the federal government and oversee expenditures from trust funds for infrastructure projects.  See their description of their proposal here. 

While I think any such proposal would require considerable finetuning to ensure that the entity would not function as a mere conduit of government largesse to big corporate players (as the Defense and Pentagon contracting programs with Halliburton and Shaw have been), it may be that it is time for Congress to consider such an idea.  Creating a longer-term outlook for expenditures and prioritization of needs should help reveal the bankruptcy of the tax-cut, "starve the government" rhetoric of the far right.  As Rohatyn and Rudman note, nobody wants "big government" per se, whether liberal or conservative, but everybody (except the "starve the government" group) wants effective government that provides safety nets for the poor and security and public goods for us all.

We won't get that kind of effective government if we continue to finance it with money borrowed from foreign countries and future generations, in order to provide tax breaks to top quintile individuals and megacorporations.  It's time to stop the giveaways, and start thinking responsibly about the future.  Maybe the "national investment corporation" is one idea that should be considered.

The Senate's Benefit-Reduction Plan

The Senate Budget Committee met October 26 for its final vote on the budget reconciliation package that will go to the floor for a full vote next week.  I watched a good part of the "debate" on C-Span.  It was an experience in alternative universes.  First, the Republican Chair presented a rosy chart of the constant growth of the tax revenues, due almost entirely in his account to the wonderful tax cuts that Republican federal government has enacted.  Tax cuts worked, he proclaimed, because they put money back in the hands of the wealthy entrepreneurs that establish businesses and are the heart of the economy.  He praised the work of Republicans to create sanity out of a federal government gone mad with entitlement spending, using the term "deficit reduction package" over and over again to describe this season's budget building effort.  To hear his speech, one would think that the country was operating in fiscally sound conditions, using its resources and avoiding wasteful expenditures.  Other Republican speakers repeated the "deficit reduction package" mantra.  For the first time, this universe's inhabitants proclaimed, this government is taking responsibility and working to reduce the deficit.

The minority ranking member Conrad outlined the other view of the universe second, providing chart after chart methodically decimating the "deficit reduction" claim of the majority.  He illustrated the move from surpluses under Clinton to deficits under Bush.  Noting that the future will show deficits reaching out to the horizon and growing deeper over time, he showed how the corresponding chart for the national debt reaches upward to the heavens, from our current $8 trillion to $11 trillion shortly and continuing upward, especially if interest rates increase (as they are likely to) resulting in higher and higher debt service burdens.  While the Republicans touted $35 billion in budget cuts (mostly to programs that serve the poor, see below), they disregard the bigger hole created by $70 billion in new tax cuts for the wealthy, mostly being funded by borrowing money from China, Japan and the UK, with the US looking forward to a kind of neo-colonial status as foreign countries own more and more of our assets.  (Some of this group don't even bother to disseminate on this scorer any more.  Connie Mack appeared on last Sunday's talk shows pushing multi-millionaire estate tax relief standing on a rickety two-legged stool of claims (1) that the estate tax costs people their family farms (simply wrong) and (2) that the federal government can costlessly pay for the billions in lost tax revenues by simply borrowing even more heavily from China and Japan!)

For a description of the budget bill without any acknowledgement of the two universes described above, look to the Wall Street Journal's Oct 27, 2005 article "Deficit-Cut Plan Advances in Senate" by David Rogers (at A6).

Here's another bit of the dark side of the rosy universe drawn by the majority members of the Committee.  The final budget reconciliation bill will likely provide the final authorization for opening up the Arctic National Wildlife Refuge to Big Oil's devastation, sold to the public under the promise of cutting energy prices even though it will take ten years to begin production and in spite of what we know both about Big Oil profiteering and the need for conservation rather than the pipedream of continued increases in output to meet China's ravenous appetite and our own undisciplined consumption.  This is the universe of take America's heritage from the people to give to the already rich Big Oil.

The bill will likely cut Medicare and Medicaid--at a time when more of our children have no health care whatsoever and vast majorities of the American people say universal health care should be a high priority even if it means higher taxes to achieve it.  Instead, the Senate Committee's package cuts billions from these programs, but it does redirect $10.8 billion in these Medicare "savings" (read--reduction in health care provided to the poor and lower-middle-income Americans) to increase physicians' reimbursements (a 1% increase, instead of a 4.4% scheduled cut)!   This is the universe of take from the poor to give to the rich. 

The bill will likely cut food stamps funding, at a time when poverty is increasing in this country as etched on our consciousness by the Katrina evacuees' desperate situations.  As many as 300,000 low income individuals may be denied benefits under the House Agriculture Committee's version of the food stamp cuts, while the House Energy and Commerce Committee approved billions in savings from Medicaid.  See David Rogers, House Panel Votes to Cut Food-Stamp Funding, Wall Street Journal, Oct. 29, 2005, at A4.  This is the universe of take from the poor and let them eat cake.

The final budget reconciliation bill will also likely provide another opportunity for this Congress and administration to reneg on their promise to rebuild the Gulf Coast and help Katrina's impoverished victims, the two salient priorities that Americans grasped so viscerally after the hurricane hit.  More and more, Congress is finding they need not spend as much as they had expected on Katrina's victim sor make the necessary sacrifices (bridges to nowhere in Alaska come to mind) necessary to fund wetland restoration in Louisiana.  Various projects have been proposed, from small experimental projects as described here, to vast restoration of the Mississippi delta, described in a multiple-page story in Sunday's New York Times (not yet available online).  Congress has not been willing to fund these projects, yet without them the marshlands of the Mississippi River delta are losing 25 square miles a year to erosion.    This is the universe of take from our natural resource heritage, and use it to fund boondoggles to keep current politicians in power.

Congress is also shifting the funds it has already authorized for emergency use after Katrina, as you can read in this October 29 New York Times story.  It indicates that only $2.2 billion of the White House's request to  transfer $17 billion of approved hurricane relief funds from FEMA to other agencies will be used for Housing and Urban Development programs for low-income Gulf Coast residents.  A good portion of the $17 billion redirected funds will be used by the military to repair military installations and ships (possibly done under contracts already in place with Halliburton and similar companies).  This is the universe of take from the disadvantaged, and give to crony corporations.

As the budget reconcilian process winds it way to a close, one can only hope that the current Congress will step back and realize that the decisions it makes now affect the coutry and its citizens for the long term.  If we continue to refuse to face the need for investments in infrastructure, from restoring wetlands to investing in expanding human capital through education, we will pay with an inability to compete in the brave new world of the 21st century.  If we continue to withdraw safety nets from the middle and lower classes while the boons of economic growth go almost entirely to the upper quintile we will face a social crisis of unforeseeable dimensions. 

Taxation is the way that we fund the priorities we have established for ourselves.  In a democracy, these decisions must be taken with imput from the people and attention to their demands for health care, wildlife protection, and attention to the quality of life concerns all share.  It is time for the country to deliberate about these measures, rather than holding mock rhetorical battles based on  alternative universes that share no common ground.

Katrina Aftermath

Congress today is poised to pass an emergency tax bill with numerous provisions meant to ease the burden on Katrina's victims, according to this announcement from the House and Senate tax writing committees.  Information (including summary, bill text, and revenue estimate) regarding HR 3768, Katrina Emergency Tax Relief Act (KETRA) is available here.  The Joint Committee's explanation of the Senate version of the bill is here. 

For a concise overview of the provisions, see Professor James Maule's blog posting here.   The bill provides for withdrawals from retirement accounts without penalties, suspends the limitations on charitable contributions in connection with Katrina relief, waives the threshold requirements for Katrina casualty losses, extends the period for nonrecognition in connection with involuntary conversions, and provides employee relief, among other provisions.

The overall cost of Katrina relief, whether in the form of these tax provisions or the many other emergency response costs (including building temporary and permanent housing) will be enormous.  After his initial failure to show concern for Katrina victims, Mr. Bush has made a point of being seen in the storm zone and of making strong promises to help victims restore some normalcy to their lives.  While the display of compassion is commendable, Bush's promises of aid, estimated to run as high as $200 billion, are notably devoid of any explanation of the means for making good on the promise. 

As earlier posts on the deficit and budget situation in the context of the AMT have made clear, this country already runs record deficits funded by disproportionate borrrowing, especially from foreign countries like China, Japan and the Caribbean tax havens.  Pre-Katrina deficits were projected at $330 billion for this year.  Katrina costs (and, of course, Iraq war costs) will propel that figure much higher.  Borrowing already approaches $8 trillion and is expected to top $11 trillion in a few years.  If these additional expenses are paid for by additional deficits and borrowing, a stiff  burden will be borne by workers in the future.

What's the alternative?  The one solution that Bush suggested he would not apply--raising taxes on the wealthy to fund the government functions that we all know are necessary.  The 2001-2004 tax rate cuts for the wealthiest Americans should be withdrawn, the repeal of the millionaire's estate tax should be undone, and the rates on the highest income Americans--those that make more than $10 million annually--should be raised somewhat beyond the pre-2001 highest rate, to 45%. 

Will this Congress take those necessary steps?  It is not at all clear, given its past record of debt-financed tax cuts.   Will the Congress instead cut spending on programs vital to the well-being of ordinary Americans who don't belong to the privileged wealthy upper crust?  That is in fact what many, such as Bush ally Grover Norquist and others, have recommended.  It would be a shame if this disaster, which brought to the forefront the plight of the disadvantaged, were to serve as a springboard for both more tax cuts for the wealthy and more benefit cuts and debt burden for the poor and middle class.  Hopefully, Congress will recognize the folly of continuing its tax-cut-and-spend ways of the last four years.