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Tax Cuts Paid For With the People's Borrowed Money
by George Robertson
6 April 2003George W. Bush

One conclusion should be clear;  when a budget deficit exists, it is sheer madness for the President and Congress to cut taxes without a corresponding cut in expenditures.

I like a good tax-cut as much as the next person.  When Mr. Bush pushed through his $1.35 trillion tax-cut package early in his Presidency, about half of that amount was almost justified due to the budget surplus.    As long as a budget surplus exists it makes good sense economically and politically to give money back on the basis of who pays the least and who pays the most.  However, those surpluses are gone as are forecasts of surpluses for the remainder of the decade put forth by many economists in 2000 and 2001.  The newest round of proposed tax cuts cite no surplus or predictions of any within the next ten years, as reasons for passage by Congress.  Like wise neither the Administration nor Congress have undertaken the hard work of submitting budget cuts equal to the proposed tax cuts. Conservatives in this democracy should stand and be heard.  Democracy has a problem when tax-cuts as proposed by the Bush administration are paid for with the people's borrowed money.  Consider the following story of how Mr. Bush's tax-cut should be presented to U.S. taxpayers.

Lets say Mr. Rich has an adjusted gross income such that after the tax-cuts kick-in, saves him $50,000 on his annual tax bill.  It is fair, for the foreseeable future, to also assume that 100% of the money Mr. Rich saves on his tax bill will be borrowed by the U.S. Treasury.  

Also a beneficiary of  the tax-cut is Mr. Average.  Mr. Average has an adjusted gross income that after the tax-cuts kick-in will save him $1,000 on his tax bill.  The entire $1,000 Mr. Average saves on his annual tax bill will be borrowed by the U.S. Treasury as well.

For sake of argument lets say it is a given that:  1.)  the tax cut package has a life of 10 years;   2.)  Mr. Average and Mr. Rich continue to benefit at the same rate each year;  3.)  the average household tax-cut equals $1,000 per annum and, 4.) all of the money to pay for the tax cut is borrowed by the government at an interest rate of 5% per annum with no repayment of principal (this is roughly how the Treasury currently finances debt).   It is also important to note that the national debt, now stands at just over $6 TRILLION.  

Below is a summary of the effect of the tax-cut on both Mr. Rich and Mr. Average.

Over the 10 year life of the tax-cuts;  Mr. Average and his household receives a total of $10,000 in tax-cuts;  Mr. Rich and his household receives a total of $500,000 in tax-cuts. 

Here's the math:

Over 10 years Mr. Average borrows $10,000 and receives $10,000 in benefits.   However, by the time the 10th year rolls around Mr. Average has seen his net annual tax-cut dollar benefit reduced to $500 (assuming #4 above).   If the $2,750 in aggregate interest that was paid on the loan is deducted from the gross amount realized from the tax-cut, Mr. Average is left with net proceeds of  $7,250 over 10 years, plus he still owes the $10,000 in principal.

Over 10 years Mr. Rich borrows $10,000 and receives $500,000 in benefits.  However,
by the time the 10th year rolls around Mr. Rich has also seen his net annual tax-cut dollar benefit reduced to $49,500.  At the same time Mr. Rich's still owes the $10,000 borrowed to pay for his tax-cut.   He has also paid $2,750 in aggregate interest.  Therefore, Mr. Rich's net return on the tax-cut over 10 years is $497,250.

Now an average sixth grader can perform the math to sum-up the 10 year tax cut:  Mr. Rich has $497,250 in cash, minus the $10,000 he still owes, leaving a net benefit of $487,250.

Mr. Average has $7,250 in cash, minus the $10,000 he still owes, leaving a net benefit of a negative amount, ($2,750).

Who wins?  Mr. Rich.
Who loses? Mr. Average, by a whopping $490,000. 

Now, even if you strongly support any tax-cut, try to think of Mr. Bush's and the Republican Congress' tax-cut with some consideration for fairness.   If viewed from a truly conservative perspective, can it be fair to ask 100 taxpayers to go to the bank, borrow $1,000, each and every year, keep $500 for themselves and give the other $500 to the richest person they know; every year for ten years.  This approach defies logic and personal responsibility.  What does Mr. Rich say to Mr. or Ms. Average standing at his door with a $500 check?  "Thanks Average, I only made $700,000 last year and I am really glad to see that you understand my financial plight!?" 

Where are loyal conservatives?  It is their job to accurately characterize this rip-off of the people's money. 

What can we conclude from the above?  One conclusion should be clear;  When a budget deficit exists, it is sheer madness for the President and Congress to cut taxes without a corresponding cut in expenditures.   Conclusion two;  since Congress has made it so easy to write an IOU on behalf of all of us currently living, and our children and their children's children and their children and so on... in the name of fiscal sanity it is time Average Americans took action to force the Congress to draft and put to the States for a vote, a balanced budget Amendment.

George Robertson is an architect from Mercer Island, Washington.

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