June 1, 2003 - More than one third of American households will not see a benefit from the two phase Republican tax-cuts. Phase three is yet to be unveiled but it is coming. Newsweek reports in its June 2nd edition that the next step in the Bush tax reduction program will feature restricting income taxation to money earned in the territorial United States, exempting overseas income coupled with a drive to either reduce or eliminate taxation of corporate profits. The Bush economic program has been sold to Congress and the public as a tax-cut and an economic stimulus program. In reality it will accomplish neither objective. It will not reduce the burden of taxation upon American families. The burden of collecting taxes to provide for essential public services and facilities is being shifted from the Federal government to State and local governments. If the economy is to prosper the infrastructure upon which the economic engine moves must be maintained. If the contribution of Federal funds to maintain the transportation system, to rebuilding highways and airports, is reduced in the wake of reduced Federal taxation then the contribution of State and local taxes must increase if we are to hold our own. Taxes won’t be cut but rather State and local taxing bodies will be forced to increase their levies to pick up the slack left by the abdication of Federal responsibility.

The perceived evil of taxing corporate profits when earned by the corporation and again when distributed in the form of dividends is attacked doubly, by reducing and then eliminating individual income taxation of dividend and capitol gains and then by reducing or eliminating taxation of corporate profits. Double taxation will be replaced by no taxation at all.

We are told that the reform will encourage business investment and create jobs. Where will that investment go? Where will the jobs be created? If individual and corporate overseas income is made tax free, making the whole world an offshore tax haven, the investments and the jobs are more likely to be in India than in Indiana.

When interest income is taxed and dividend and capitol gains income is either taxed at a materially lesser rate or not taxed at all, where is the investment in Federal debt to come from? The deficit resulting from these tax cuts must be funded by borrowing money. Investors will only loan that money if interest rates rise to equalize the tax differential. When you raise the price of money for Federal debt instruments, Bonds and T-Bills you also raise the interest rates for all borrowers, public and private. When business interest rates rise so must the price of the goods and services business produces. Bubbles inflated with borrowed money quickly burst. Increases in consumer and mortgage interest quickly deflate expanding demand.

Can we afford the results that these reforms promise? Not many Americans can. Only those already on the highest rung of the economic ladder will be able to affirmatively declare that they are better off than they were four years ago.