Analysts Ridicule Senate’s Tax Package

Posted May 16, 2003 at 12:30pm

An early assessment from two watchdog analysts concludes that the Senate’s just-passed tax package will do little to stimulate the economy and will put more pressure on cash-strapped states.

Furthermore, it would not entice corporations to pay federal taxes nor dissuade corporate tax shelters, said Peter Orszag, a senior fellow at the Brookings Institution. Bush’s original proposal to eliminate individual taxes on dividends contained a provision that would only allow corporations that first paid taxes on those dividends to take advantage of the break, he said. The Senate plan removed that carrot Thursday night.

The Senate’s $350 billion bill disguises the real cost, Orszag said, and uses gimmicks to fit the full dividend cut. While it contains a “sunset” provision that assumes the benefit will end after 2006, the Republican architects hope and expect it will be extended, he added.

In that light, if none of the provisions actually sunsets, it would cost at least $2 trillion, Orszag said.

As for the goal of jump-starting the economy, he said it is “the worst of all worlds,” explaining that if experts drew up a list of how to stimulate the economy, the Senate’s plan would not even make the bottom.

While the Senate added $20 billion to help states that are facing massive budget shortfalls, its effect would actually cost states closer to $40 billion through 2013, said Bob Greenstein, executive director of the liberal-leaning Center on Budget and Policy Priorities.

That is because states would lose personal income tax revenues since most automatically align their tax codes with the federal code, he said.

He called the sunsets, which he said lawmakers have no intention of ever invoking, a “bait-and-switch tactic” used to make a bigger tax cut fit within the “artificial” confines the Senate set forth in its budget resolution.

Republican leadership offices did not return calls for comment.

Looking forward to a conference committee with the House, Greenstein said he is not “optimistic” that conferees will devise a better plan.

The House’s $550 billion plan used mathematical acrobats as well, he said, adding that neither price tag has any meaning since the final cost will climb higher and higher if Congress extends the tax cuts in later years.

Earlier this week, Ways and Means Chairman Bill Thomas (R-Calif.) said that kind of assumption is wrong.

Some of the package’s provisions are intended to stimulate the economy and are not meant to continue indefinitely, he said.