This has been a big couple of weeks for the United States treasury. The dollar continues to fall against the euro, the trade deficit is setting new records, Congress has yet to raise the debt ceiling, unemployment has reached 6%, the Senate finally passed its nonsense tax package, and the Treasury Department unveiled the newest line of defense against counterfeiting: the colored twenty dollar bill.
Public reaction to the change has been negative but somewhat muted, probably because Treasury phased in the last new set of bills with few problems. They have even declared their intention to continue revising the look of our money every few years to continue to foil counterfeiters. There's some concern that with constant revisions and without its trademark solid green, the new money will hinder instead of help Americans in detecting forgeries. But the color of the dollar is the last thing that Americans should worry about.
Americans instead should be worried about where those dollars are going. The President's budget was breathtaking in its audacity: a $726 billion tax cut, mostly for the extremely wealthy. And when Democrats say "mostly for the extremely wealthy" that is exactly what they mean. Here's Representative Henry Waxman's analysis of one extreme example, the dividend tax cut:
Unfortunately, most Americans believe either that they're in the richest 1% already, or they will be soon. What do the richest 1% make? They make over $374,000 a year, and will keep $11,000 more as a result of the dividend tax cut. The rest of us get $29.50. (Except that $29.50 is an arithmetic mean: probably most of us in the bottom 80% don't hold any or few stocks. The typical American who does hold stocks is likely to have them in a 401(k) where their dividends are already tax-sheltered. So the tax cut for us is likely to be much closer to zero.)
Proponents will argue that it's alright that the rich are getting most of that tax break because (a) it's wrong to tax dividends twice (psst it's really not); or (b) the people who get the tax break are investors, and it will spur them to invest more and boost the economy. But the Senate's tax plan phases in the dividend exemption, to keep the overall cost of the plan at $350 billion as defecting Republicans like George Voinovich have demanded. That means not just less money pumped into the economy short-term, but actually almost zero or negative amounts of money injected. Think about it: if you were going to issue dividends to your stockholders this year wouldn't you now delay until next year when they're taxed at half of what they are now? Or why not till 2005-2007 when 100% of dividend income is exempted from tax?
That's the centerpiece of the tax package the Senate just passed. But what about the broad-based cuts in marginal rates? President Bush likes to say that the "average American" will get $1083 back from his (original) tax proposal. But again, that's the mean, not the median. That's like saying if a person making $1 million a year walks into a room with ten people who each make $50,000 a year, the average (mean) income of a person in the room is $136,000. The median income