There are so many appalling ideas emanating from the Bush White House that it can be hard to keep up with them all. Did you catch this, from the business section of Thursday’s New York Times?
Piece by piece, President Bush's new tax proposals would go a long way toward achieving a goal cherished by many of his top advisers: eliminating taxes on investment income.
No, it’s not just the elimination of dividend taxes. It’s a proposal you might not have heard about:
Under that proposal, a married couple with two children would be able to put up to $45,000 a year into a class of individual retirement and savings accounts. They would still have to pay taxes when they earned the income, but they would never have to pay taxes on any of the money that accumulated in their accounts after that.
Republican whine about “double taxation.” The Bush scheme proposes double tax elimination:
At least as envisioned thus far, people would even be able to take home-equity loans on their houses, deduct their payments of mortgage interest and put the money in a "retirement savings account" or a "lifetime savings account," where it could earn tax-free profits indefinitely.
The “lifetime savings account” is an account into which an individual can contribute $7,500 a year and earn tax-free interest not merely for retirement, but for day-to-day living -- all withdrawals, at any time, would be permitted, and any money earned on the accounts (interest, dividends and so on) would be tax free.
In other words, this is a giant step toward a system under which
investment income would inherently be excluded from taxation.
What people earn from, y’know, work would of course be taxed -- there’d be a flat income tax or a consumption tax (essentially a sales tax).
This is staggeringly regressive.
If you’re working poor and living from paycheck to paycheck, the Bushies want to tax every dime you earn -- because you undoubtedly need to spend every dime you earn. But the person who’s comfortable and can sock some money away gets to collect interest or dividends or capital gains on that money tax free; only the portion of the comfortable person’s (or rich person’s) salary that is actually spent gets taxed, at the same rate as the poor person’s entire paycheck.
And the follow-up from Saturday's Times makes it official:
President Bush, having already set off a firestorm over his proposals to cut taxes and revamp retirement accounts, suggested today that the time might be near to drop the income tax as a whole and replace it with some form of consumption tax.
The idea was outlined in the White House's annual economic report to Congress. The report, prepared by the White House Council of Economic Advisers and signed by Mr. Bush, offers a scathing critique of the current system and an exuberant description of radical alternatives.
Paul Krugman got grief for saying that the Enron debacle would be viewed by history as more significant than 9/11. That's understandable -- but I'm going make a similar counterintuitive statement: A shift to a consumption tax may well do more harm to America than terrorism, and will do more harm than 9/11. It will radically increase this country's wealth disparity. It will create debts that will require the elimination or evisceration of Social Security and Medicare. Be afraid. Be very afraid.
UPDATE: The Bush budget just submitted to Congress scales the tax-cutting back a bit, but Senator Kent Conrad of North Dakota still calls Bush's plans "nuts." Conrad looks at the red ink in the budget and tells Newsweek:
"They’re smart people, and they know what we know, that the deficit will explode when federal expenditures peak. And that’s when I had this revelation: the only rationale for what they’re doing is that they plan to fundamentally gut Social Security and Medicare.”