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 The 2001-2004 tax rate cuts for the wealthiest Americans should be withdrawn, the repeal of the millionaire's estate tax should be undone, and the rates on the highest income Americans--those that make more than $10 million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.
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