Make the tax shift permanent

Along with virtually every other Republican, McCain wants to “make the tax cuts permanent”. Tax cuts pay for themselves, he says, and even if they don’t, tax cuts won’t create a deficit because we will just hack away at all that waste, fraud, and abuse. And, even if those plans don’t pan out and deficits increase, everyone has more money in their pocket right now because of the tax cuts. You can’t argue with that. That’s money in the bank!

Liberals counter by pointing out that the extremely wealthy receive far and away the largest benefit of the tax cuts. That’s true. They also point out that making the tax cuts permanent would result in large and persistent deficits. That’s true too.

So, in summary, liberals have facts on their side. Conservatives have vague generalities that upon inspection are mistaken (to put it charitably). But conservatives have a done nice job of framing the issue–making it personal and concrete with a nice sound bite for people on both side to argue about. Tax cuts—good or bad? You decide.

Does this sound familiar?

So lets do a little re-framing. My starting point is the liberal claim–also true–that there is no tax cut in an economic sense. Since its done with borrowed money, taxes have been deferred , not cut. That’s true, but it’s really more than a tax deferral. Its a tax deferral with the hope of a tax shift. You see, there’s more than one way to collect a tax. It’s possible that deferred taxes will be collected via the progressive federal income tax. Or, who knows? Maybe the federal tax system will be even more progressive when the Bush tax deferrals are collected. I don’t think that’s the plan.

More likely, the plan is to shift the tax onto the beneficiaries of other federal programs. How do I know that? Let’s take a look at what the federal government spends money on (click to enlarge):

The “Effect of Tax Cuts” dwarfs everything except defense and social insurance programs–Social Security, Medicare, Medicaid. The latter are programs that the Democratic Party initiated, defended, and funded over the bitter opposition of the Republican Party. The Republican Party still opposes the programs, but they have a problem. The programs are very popular. Thus, the Tax Shift Strategy. Rather than set forth legislation gutting social programs the Tax Shift Strategy allows them to say “Geez, we love Social Security and want to save it; same with Medicare, but I’m afraid we will have to cut them back. What with all these budget problems. So sad.”

Right. If you find your Social Security benefits cut, or your Medicare premiums increasing. Or, if you are physician, and find your Medicare or Medicaid reimbursement decreasing, or if you are a state govenor looking at decreasing federal support for Medicaid—you’re experiencing the Bush/McCain Tax Shift. From the perspective of the ideologues on the right, its a great thing. From the perspective of the vast majority of Americans it sucks. That’s why it’s called a tax cut.

Note: if you are interested, the federal spending numbers come from the 2008 estimate of the federal budget at OMB, Table 3.2; the effect of tax cuts is from an analysis done by the Center on Budget and Policy Priorities.

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Filed under economics, framing, healthcare finance, social insurance

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