David Wessel asks some very good questions about Bush Administration tax-side proposals:
Posted by DeLong at February 06, 2003 04:55 PM | TrackbackDoes it all add up?
Will families really save more? If they can afford to, though eliminating upfront deductions and allowing people to withdraw from accounts tax free may limit the appeal. And allowing them to move existing savings to new accounts to pick up tax benefits packs no economic punch at all.
Will the nation save more? Only if Americans save more than the run-up in the federal deficit produced by new tax breaks. Past tax-reform proposals offset tax cuts with tax increases; this one doesn't.
Will companies actually invest more and rely less on debt? That depends on how the stock market and executives react. But this approach won't do as much as the politically less-appealing alternative of giving corporations a tax deduction when they pay dividends.
Ending "double taxation" has a nice ring, but are we taxing income at least once? The Treasury insists it is bearing down on outrageous tax dodgers and is seeking a bigger IRS budget, though Mr. Bush offers little public backing for these efforts. The two loophole-closing proposals in his budget would raise less than $5 billion over 10 years, the Treasury estimates. The dividend-tax break would cost $385 billion.
And how much do we want to use taxes to restrain the economy's tendency to widen the gap between rich and poor? With the new savings proposals, the only direct winners from the dividend-tax break will be those -- think Bill Gates -- who save so much they can't tuck it all away in the new accounts. The direct rewards to lightening the tax on capital income go to people who get such income. And, despite the successful campaign to turn the estate tax into a populist issue, repealing it rewards only the truly wealthy.
Dismiss the subterfuge and silliness that always pollutes the tax debate. These questions are the ones that matter.