Not unexpectedly, Mr. Bush has called for cuts to programs for the needy in order to fund the billions in spending in the aftermath of Katrina. The White House proposes that hurricane relief should be funded in part by cutting Medicaid, Medicare and food stamps and a few other programs. Apparently the rest is to be funded by more federal debt. Don't expect any cuts to the Departments of Defense or Homeland Security, and don't expect any reasonable tax increases (or allowing tax cuts to lapse), such as eliminating the special rates on dividends and capital gains that allow the wealthiest Americans to pay very little tax on their main source of income.
In fact, Senator Kyl (the avid proponent of repealing the multimillionaire's estate tax) wants to pass special tax legislation for people in the Gulf zone. While you might think that the legislation would be to aid people in the lower four quintiles of income who are suffering terribly from the upheavals of Katrina, that's not Kyl's plan. He proposes that Congress should repeal taxes on dividends and capital gains and on estates for people in the Gulf zone! Remember that only very few estates are subject to tax, so the people aided by Kyl's proposed tax cut on estates in the Gulf would only be those wealthy people who have estates worth millions. And the people who benefit from zero taxation of investment income are also the wealthy, for whom a large proportion of their income comes from investments rather than labor.
Cutting those taxes makes no sense at all. That legislation would increase the deficit and hand a tax windfall to the very wealthy. It won't create jobs. It won't provide health care to those who have no jobs. It certainly won't cut the budget deficit so that less money has to be borrowed for future generations to repay. It will not do a single thing to help the people who need the help, those underprivileged, unemployed victims of Katrina who caused our hearts such anguish when we saw their suffering in the aftermath of the hurricane. It will only increase the inequality that already threatens to undermine our democracy. Kyl's continuing the drumbeat for more tax cuts for the wealthy is opportunism at its worst--any old crisis will do for arguing for more tax cuts for those who have, and more ignoring of those who have not.
The one encouraging sign is that there are at last voices--Republican and Democrat--opposing the foolhardiness of cutting programs for those that are the most needy while giving more tax cuts to those who need them least. The New York Times has it right in its October 10 editorial: Tax Cuts Are Not the Priority. The editorial comments on last Thursday's Finance Committee meeting, in which Republican Senator Grassley "accussed the White House of trying to kill his measure to pay for health care for those poor and uninsured Katrina victims who are not eligible for Medicaid."
Meanwhile, Treasury officials appear worried less about health care for the needy and more about tax breaks for businesses--promoting "enterprise zones" where companies get big writeoffs for simply doing the business they would do anyway. Not much of the benefit of such zones goes to the people living there. See, for example, this statement in the abstract of a 1989 study by Dennis Zimmerman, Federal Tax Incentives for Enterprise Zones: Analysis of Economic Effects and Rationales.
"Enterprise zone residents will derive few direct benefits from the capital subsidies (money spent to buy equipment and build structures) and the labor subsidy. Although enterprise zone residents would receive some indirect benefits from the investments stimulated by the incentives and an improved tax base, land prices would increase, raising the cost of living in the area and offsetting some of the improved public services or reduced tax rates financed by the new investment." (emphasis added)
I remember when I was in practice that my law firm received some not insignificant benefits from the enterprise zone in DC in which it just happened to be located, doing activities that it would have done anyway. It neither located there nor hired specific workers because of the "enterprise zone" existence. It merely gladly took the tax breaks that resulted from its otherwise planned activities. That, the Times editorial notes, is what research of existing zones suggests typically happens--wealthy investors and businesses get a tax windfall; growth and employment get at best a de minimis boost. Meanwhile, in the Gulf Zone, we can expect that underprivileged Americans will fall by the wayside, and businesses that are struggling to stay operational because of massive losses will not be able to use the writeoff because they won't have profits to offset.
Let's hope that more members of Congress finally get it. They should put the Treasury's proposals for enterprise zones and Sen. Kyl's proposed new tax cuts for the wealthy where they belong--in the trash can.
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