THE WAR'S NOT OVER
The awful Bush tax bill has been passed and signed into law. If it takes full effect, it will undermine tax fairness, sharply increase income-and-wealth inequality, and bust the budget for years to come. Some 38 percent of the tax cuts are targeted to the best-off 1.3 million of all taxpayers, while the 78 million individuals and families in the bottom three-fifths of the income scale will share less than 15 percent of the tax breaks. And despite pious claims about fiscal responsibility from Senate "centrists" the final tax plan will cost 20 percent more than what Bush originally proposed once it's fully in place.
But Bush's victory this year is only the first round in a long fight over the future of tax fairness. To keep the enormous tax cuts within the budget target, the plan is phased in fairly slowly; its most regressive and expensive elements don't take effect until considerably later in this decade. So there will be plenty of opportunities for future Congresses and presidents to reconsider the tax cuts enacted this year.
It's reasonable to assume that tax changes scheduled to take effect by January 1, 2003, are unlikely to be amended. Most of these items are either benign or not particularly egregious anyway, and the next three years will see only a small down payment on the upper-income tax reductions that are the heart of the Bush plan. But if the Congress to be elected in 2002 faces a budget crunch, it may want to reconsider some of the tax cuts slated to take effect in 2004 and 2005 (although making changes while Bush is still in office will be difficult). The most problematic of the cuts beginning to take effect in these years are a further cut of 1 percentage point in each of the top four income-tax rates, an increase in the estate-tax exemption to $1.5 million (and double that for couples), and a drop in the top estate-tax rate to 47 percent.
Depending on who wins the national elections during the next presidential cycle, 2004 could usher in a whole new era for tax policy. Over the following four years, Congress and the president will have to decide whether to complete the Bush income-tax-rate reductions--under which the top four rates will fall to 35 percent, 33 percent, 28 percent, and 25 percent--and whether to allow a further backdoor reduction in the highest rates by phasing out current law's disallowance of personal exemptions and a portion of itemized deductions at high income levels. Lawmakers may also reconsider the slated increase in the estate-tax exemption to $3.5 million ($7 million for couples) and the cut in the top estate-tax rate to 45 percent. Finally, the Congress and president elected in 2008 will face a big decision on the single most regressive item in the Bush tax plan: the scheduled repeal of the estate tax in 2010. …