THE FEDERAL Budget currently is in dour shape. Tax cuts and reckless federal spending, especially in the defense sector, have left the economy with an enormous federal deficit.
To add flames to the fire, recently the Bush administration has introduced its version of the budget -- a hideous mess of cutting programs designed primarily for poor and working class Americans while continuing to cut taxes for the rich. According to the Seattle Times, the current budget submitted by the president leaves a $337 billion deficit for 2006 spending. For the first time in American history, military action has been preceded by tax cuts.
While Bush tries to pay for irresponsible cuts and poorly planned wars with modest cuts in social welfare programs, the budget remains in the red. Besides, the most unpopular cuts in spending typically wind up watered down in Congress, resulting in virtually no gain in revenue from spending cuts. In effect, the Bush administration is financing both a war and huge federal spending, such as huge prescription drug increases, with nothing but hope and debt. Since the Government is unwilling to significantly cut government programs, particularly withdrawing from the costly Iraq war, the only other way to rationally finance the budget right now is through tax increases.
Other than robbing those who need it the most of popular benefit programs such as Medicare or Social Security, Congress must pinpoint and stop tax breaks specifically aimed at the wealthiest upper brackets. First, Congress must retract the original tax cuts placed by the administration. Unfortunately, at this point withdrawing the tax cuts will not restore the negligent deficit, especially with the administration's 2006 budget approaching $2.77 trillion, according to the Associated Press.
Raising the capital gains tax would be one of the best venues to pay down the debt, and would be a good source of revenue if it was not in its weak shape. The capital gains tax is a tax on gains in both stock and real estate investments, two areas that primarily affects wealthier investors and not middle class families. Currently, the capital gains tax is at 15 percent, significantly lower than the income tax for Americans.According to the Center of Budget and Policy Priorities, a non-partisan think tank, the top one percent of Americans earned over 50 percent in capital gains income, and the figure is still rising.
Although the Congressional Budget Office painted a rosy picture of increased revenues from a decreased capital gains tax rate, due to increased investment, there are two major flaws to their logic.First, the CBO's estimate on the long term gains from the capital gains cut is overstated. Therefore, the estimates of a large increase in tax revenue due to a decrease in the capital gains tax is overly optimistic and is not a valid long-term estimate of the revenue gained from increased investment.
Second, any estimates indicating that the government will see much of the money resulting from increased investment are silly at the very least. According to estimates by the Joint Committee on Taxation,a Government think-tank, revenue losses from continued tax cuts in capital gains and dividends would add up to $148 billion through 2015.
The capital gains tax cut is not the only way corporations and wealthy individuals are profiting from Bush's fiscal irresponsibility. Many major corporations are using unnecessary tax loopholes to pay nearly nothing in taxes from their revenue by redistributing their income flows from. For example, American companies such as Carnival and Royal Caribbean cruises late last year were able to report their incomes from foreign subsidiaries in countries known for being corporate havens. Through this loophole they avoid paying millions in taxes despite being listed on the New York Stock Exchange and receiving most of their operating income from the United States, according to Florida Today and other publications.
The duty of closing these tax loopholes should go to both the administration and Congress -- however, there is little evidence that the administration will follow through. For example, Bush is currently talking tough about reducing dependence on foreign oil in order to reduce the deficit. However, the same administration previously allowed for tax cuts for buying gas-guzzling Humvees throughout most of its term.
Most Americans assume that those who make the most pay the most -- on the contrary, the administration's budget of the 21st century is looking more like a voodoo economic program to keep the rich richer and the poor worse off.If the administration could shoot the deficit as well as it can shoot its friends, our generation would be much better off. However, it is up to the more level-headed Congress and the American people to make sure all Americans pay their fair share in the economy.
Adam Silverberg's column appears Thursdays in The Cavalier Daily. He can be reached at asilverberg@cavalierdaily.com.
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