[Mb-civic] Tax Gimmickry - Washington Post Editorial

[William Swiggard]

Tax Gimmickry
Paying for tax cuts for the wealthy with . . . more tax cuts for the 
wealthy!

Monday, April 17, 2006; A12
Editorial
The Washington Post

MUCH TO THE chagrin of the White House and the GOP leadership, lawmakers 
didn't get a new round of tax cuts done in time for tax day today. But 
when Congress comes back from its recess, it's expected to take up a 
deal to extend President Bush's capital gains and dividend tax cuts. To 
make their budget-busting tax policy appear less costly than it is, the 
lawmakers are resorting to a gimmick that is even more egregious than 
their usual tactics.

This one would, as usual, hide the cost of tax cuts that primarily 
benefit upper-income Americans. But it would accomplish that budgetary 
smoke and mirrors with a new tax provision, involving retirement savings 
accounts, that also benefits the well-to-do. And, to top things off, 
this new tax provision, while masking the cost of the tax cuts by 
bringing in more revenue in the short term, would in the long run worsen 
the fiscal situation by piling on more debt. No one who's serious about 
controlling the deficit -- whatever one's position on extending the tax 
cuts -- could support this dishonest approach.

The gimmick is intended to get around a Senate rule that requires 60 
votes to approve a tax bill if it's going to deepen the deficit more 
than five years down the road; if it won't have that long-term impact, a 
simple majority could suffice for passage. Unfortunately for Senate 
leaders, a two-year extension of the capital gains and dividend tax 
cuts, now set to expire in 2008, would cost $20 billion over the next 
five years -- but $30 billion more in the five years after that. 
Taxpayers will scramble to take advantage of the lower rates now, 
thereby lessening tax revenue later. So to pass the cuts with only 51 
votes, legislators have to find some way to offset that second five-year 
revenue loss.

Enter the retirement savings gimmick. As it's being discussed behind the 
scenes, this would let wealthier Americans use savings plans known as 
Roth IRAs. With traditional IRAs, taxpayers get to deduct the 
contributions they make from their income for that year; they pay taxes 
on the savings once they are withdrawn. Roth IRAs flip that arrangement 
around: Contributors pay taxes on the income they put into the accounts, 
but their savings then grow tax-free. So letting more people put money 
into Roth IRAs would increase tax revenue for a while -- offsetting, at 
least in theory, the cost of the capital gains cuts. But the Roth change 
would cost money down the road, as revenue once subject to taxation 
would grow tax-free.

Bottom line: A Senate rule designed to make it harder to increase the 
deficit would be circumvented with a maneuver that would end up 
increasing the deficit. And a tax cut for wealthier Americans that would 
cost $50 billion over 10 years would be "paid for" in part by another 
tax cut for the well-off, which would end up costing billions more. 
That's amazing -- even from this Congress.

http://www.washingtonpost.com/wp-dyn/content/article/2006/04/16/AR2006041600685.html?nav=hcmodule
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