December 26, 2011 · 3 Comments
By Marie Burns:
In his Christmas Day column, the New York Times' resident Roman Catholic conservative Ross Douthat reminds us of “the first couple of the New Testament, who manage to cope with a supernatural pregnancy, a murderous king and the necessity of delivering a child in the bleak midwinter, half-out-of-doors and far from home.” You might expect him to make this a morality lesson on how “the first couple” thrived and managed to rear a deity despite these hardships. You might expect him to segue into a reprise of later fictional characters like Ebenezer Scrooge of London and George Bailey of Bedford Falls who prove the poor don't need government handouts because the private sector will always come through. Wrong. Young Douthat instead bemoans “the darker possibilities of the Christmas stories” largely caused by income and educational inequality which lead to “a host of domestic ills” and “a crisis of family life.”
Then, sounding a little like, oh, Robert Reich or any of a number of liberal policy wonks, Douthat writes, “But public policy can still make a difference in the way we organize our private lives, and public institutions should be designed with existing patterns of social life in mind.”
That sentence, I believe, is known as “the hook.”
Douthat explains why “the European approach” to dealing with the challenges of child-rearing would not work well for American families. He has a better idea: he suggests a “dramatically expanded child tax credit in order to ease the burden on parents with young children.” Douthat recommends the proposals of conservative policy wonks Ramesh Ponnuru and Robert Stein – proposals which “would leave contemporary Baileys and Cratchits with more disposable income and more options without favoring one approach to parenting over another.”
In reading a few of the popular comments to Douthat's column, it appears that readers did not believe Republicans would pass such a tax credit. Oh, yes, they would. The proposed child tax credit is a Trojan horse, part of a larger plan designed – I'm willing to wager – to end Social Security and Medicare as we know them. Let's look that Trojan horse in the mouth.
What Stein proposes, and Ponnuru endorses, is a massive restructuring of the tax code, which Stein dubs “a pro-family tax agenda.” Uh-huh. Stein thinks Americans fail to appreciate the value of children as income-producers: “... in the United States, Social Security and Medicare have 'crowded out' the traditional incentive to raise children as a protection against poverty in old age.” So “... to restore the incentives for producing new generations of Americans [we] should push to reduce taxes on families with children.” Ponnuru actually sees the current system as imposing a sort of double taxation on families: not only do the parents pay taxes, but the little income-producers whom they produce will one day have to pay taxes, too! You might not be surprised to learn that Ponnuru is explicitly pushing this “pro-family” tax plan to Roman Catholic voters.
To increase the number of future income producers, Stein proposes a “new $4,000 credit per child [since upped to “closer to $5,000”] that can be used to offset both income and payroll taxes.” As you likely know, conservatives have been complaining loudly that 47 percent of American households “don't pay income taxes.” GOP presidential candidate Michele Bachmann thinks this is just wrong. During a debate, she recommended that everyone should pay at least $10, “the price of two Happy Meals a year.” So if almost half of Americans are not paying income taxes, how will Stein's child credit help? If a family is already paying nothing, it doesn't matter how big a new credit is: they will still pay nothing under Stein's plan. Ah, but. Notice those key words in Stein's proposal: “and payroll taxes.” By payroll taxes, Stein means Social Security and Medicare contributions. Stein's proposal would starve these programs. Douthat doesn't tell you that. Neither does Stein. Nor does Ponnuru. Believe me, they know it. Even Douthat, who doesn't know much, knows that.
Stein sees the political advantage to his proposition:
Such an approach would also be very popular with a vital political constituency — middle-class parents — thereby opening the way to further tax reforms that would both help to pay for the new credit and correct other important deficiencies in the tax code. It could stand as the centerpiece of a new tax-cutting agenda.
That's right. There's more to the proposal than the child tax credit. A lot more. Douthat doesn't tell you the Stein plan includes “a new tax-cutting agenda.” Among Stein's proposals: cut the effective tax rate on capital investments; end taxes on shareholder dividends; reduce the income tax rate for families to only 7.5 percent and 15 percent (15 and 35 percent for singles); after “generous deductions,” reduce the inheritance and capital gains rates to 7.5 and 15 percent also; “scrap … the Alternative Minimum Tax and all itemized deductions except for two that are very popular with the voting public: those for mortgage interest and charitable donations”; add a $2,000 individual tax credit on income only. Stein claims
… the plan is designed to be revenue neutral — and yet most taxpayers without children will pay a little bit less in taxes, while middle-class families with children under 18 years of age will pay substantially less. So who pays more? Primarily high-income workers, but also upper-middle-class taxpayers who do not have children in the home (either because they have decided not to raise children at all, or because their children have already turned 18). To be blunt, the plan is a tax hike on the rich and makes the tax code even more progressive than it is today.
Really? Even Stein implicitly acknowledges this isn't true. Currently, families who receive an “earned income credit” get the credit even if they pay little or nothing in income taxes (today they still pay payroll taxes, of course). Stein calls the earned income credit “a de facto welfare payment,” and his plan would eliminate this “de facto welfare.” News flash. Many of the de facto working poor depend on this de facto welfare payment to survive. Last year the top earned income credit was $5,666 for a family with three or more children. For millions of poor working families that earned income credit was the difference between having a roof over their heads and living in a cardboard box. Robert Greenstein of the Center on Budget and Policy Priorities wrote that “Census data show that in 2003, the EITC [Earned Income Tax Credit] lifted 4.4 million people out of poverty, including 2.4 million children.” So is Stein's plan “progressive”? Not for the working poor. But then again, many of the working poor don't vote. They don't have time. The “family-friendly tax agenda” is an explicit appeal to independent, middle-class voters. Nice wedge issue, too: let's keep pitting the middle class against the working poor!
One thing Stein doesn't spell out but which Ponnuru acknowledged in a recent Bloomberg opinion piece: the proposal would “lower the floor on the top tax bracket.” That would “get more people paying the top rate.” That is, the super-rich would get a bunch of tax breaks, but upper middle-class individuals, especially, would see a tax increase, since more of their income would be taxed at a higher rate. Ponnuru suggests bringing the top rate down even further. Basically, the goal is to flatten the tax rate. How “progressive” is that? Meanwhile, there are all those nice new reductions in taxes on the rich: lowering the top rate, cutting the capital gains tax, dividends tax, inheritance tax, corporate taxes, and eliminating the alternative minimum tax. Thus, the Stein-Ponnuru proposal is “regressive,” not progressive, for the super-rich. The plan shifts the bulk of the tax burden to the upper-middle-class as well as middle-class individuals or families without children. Of course, Douthat doesn't mention any of this in his “tax break for the baby Jesus” advocacy.
I'm not an economist, so I will have to leave it to real economists to analyze whether or not the Stein-Ponnuru plan is actually “revenue neutral,” as they claim. Will eliminating most itemized deductions (except the biggest ones) actually make up for all the breaks Stein and Ponnuru propose? It seems counter-intuitive on the face of it, but since Stein and Ponnuru present no actual figures, that's pretty difficult to evaluate. We have to trust their claims.
And, oh, what about those payroll tax deductions – the ones that reduce payments into the Social Security and Medicare funds? Again, Stein and Ponnuru don't say, but there can be only two outcomes: (1) Social Security and Medicare revenues are drastically cut, and (2) Social Security and Medicare benefits will have to be cut. That's the crux of it. In fact, if Mary and Joseph don't actually pay much into the Social Security fund, their benefits will automatically be reduced since individual Social Security benefits are based largely on an individual’s contributions to the program. Tax cuts today mean benefits cuts in the future. Period. Let's hope Jesus either gets a better job than that itinerant preacher gig or at least performs daily fishes and loaves miracles so the old folks back home don't starve to death.
Ultimately, of course, the whole idea – should Douthat's Christmas Day suggestion be passed into law – is that the two largest social safety-net programs would quickly become insolvent. Allowing American families to drastically reduce their payroll tax contributions – via the child tax credit – would put Social Security and Medicare in the red forever. Then Republicans could truthfully say the programs were “unsustainable.” That's the real goal: to eliminate or privatize Social Security and Medicare. That's always one of the real goals behind conservative “tax reform.” Douthat’s recommendation is just one more way of skinning that cat.
Douthat titles his column “The Cratchit Tax Credit,” because this is a tax credit that will supposedly help out Charles Dickens' fictional family, including of course the lovable Tiny Tim. But when you look at the rest of the real story – instead of relying on Ross Douthat's fiction – you find out Douthat's scheme is actually “The Ebenezer Scrooge Tax Break.”
Marie Burns blogs at RealityChex.com
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