From NYTime.com



Duped and Betrayed

June 6, 2003

By PAUL KRUGMAN

According to The New Republic, Senator Zell Miller - one of

a dwindling band of Democrats who still think they can make deals with the Bush administration and its allies - got

shafted in the recent tax bill. He supported the bill in

part because it contained his personal contribution: a

measure requiring chief executives to take personal

responsibility for corporate tax declarations. But when the

bill emerged from conference, his measure had been stripped out.

Will "moderates" - the people formerly known as

"conservatives" - ever learn? Today's "conservatives" - the

people formerly known as the "radical right" - don't think

of a deal as a deal; they think of it as an opportunity to

pull yet another bait and switch.

Let's look at the betrayals involved in this latest tax

cut.

Most media attention has focused on the child tax credit

that wasn't. As in 2001, the administration softened the

profile of a tax cut mainly aimed at the wealthy by

including a credit for families with children. But at the

last minute, a change in wording deprived 12 million

children of some or all of that tax credit. "There are a

lot of things that are more important than that," declared

Tom DeLay, the House majority leader. (Maybe he was

thinking of the "Hummer deduction," which stayed in the

bill: business owners may now deduct up to 0,000 for the

cost of a vehicle, as long as it weighs at least 6,000

pounds.)

Less attention has been paid to fine print that reveals the

supposed rationale for the dividend tax cut as a smoke

screen. The problem, we were told, is that profits are

taxed twice: once when they are earned, a second time when

they are paid out as dividends. But as any tax expert will

tell you, the corporate tax law is full of loopholes; many

profitable corporations pay little or no taxes.

The original Bush plan ensured that dividends from such

companies would not get a tax break. But those safeguards

vanished from the final bill: dividends will get special

treatment regardless of how much tax is paid by the company

that issues them.

This little change has two big consequences. First, as

Glenn Hubbard, the former chairman of the president's

Council of Economic Advisers and the author of the original

plan, delicately puts it, "It's hard to get a lot of

progressivity at the top."

Translation: wealthy individuals who get most of their

income from dividends and capital gains will often end up

paying lower tax rates than ordinary Americans who work for

a living.

Second, the tax cut - originally billed as a way to reduce

abuses - may well usher in a golden age of tax evasion. We

can be sure that lawyers and accountants are already

figuring out how to disguise income that should be taxed at

a 35 percent rate as dividends that are taxed at only 15

percent. Since there's no need to show that tax was ever

paid on profits, tax shelters should be easy to construct.

Of course, the big betrayal was George W. Bush's decision

to push this tax cut in the first place. There is no longer

any doubt that the man who ran as a moderate in the 2000

election is actually a radical who wants to undo much of

the Great Society and the New Deal.

Look at it this way: as the Center on Budget and Policy

Priorities points out, this latest tax cut reduces federal

revenue as a share of G.D.P. to its lowest level since

1959. That is, federal taxes are now back to what they were

in an era when Medicare and Medicaid didn't exist, and

Social Security was still a minor expense. How can we

maintain these programs, which have become essential to

scores of millions of Americans, at today's tax rates? We

can't.

Grover Norquist, the right-wing ideologue who has become

one of the most powerful men in Washington, once declared:

"I don't want to abolish government. I simply want to

reduce it to the size where I can drag it into the bathroom

and drown it in the bathtub." Mr. Bush has made a pretty

good start on that plan.

Which brings us back to Senator Miller, and all those

politicians and pundits who still imagine that there is

room for compromise, that they can find some bipartisan

middle ground. Mr. Norquist was recently quoted in The

Denver Post with the answer to that: "Bipartisanship is

another name for date rape."ÊÊ