In the first days of the 107th Congress, with the Senate split 50-50, minority leader Tom Daschle was optimistic enough to quote Thomas Wolfe's famous line, "America is a place where miracles not only happen -- they happen all the time." Daschle was referring to a novel system of power sharing in the Senate that ensures Democrats an equal number of seats on each committee (though Vice President Dick Cheney still holds the tie-breaking vote on the floor). But after last week's performance in the Senate Finance Committee, which featured four of 10 Democratic members defying party leadership to sign on to a compromise tax bill, it will take more than a miracle to fend off the shamefully inequitable tax plan that is scheduled for a Senate vote today.
Ironically, three of the senators who endorsed the plan in committee -- Max Baucus of Montana, John Breaux of Louisiana, Blanche Lincoln of Arkansas -- are from poor, rural states that stand to gain the least from the top-heavy tax cuts (the fourth senator, Bob Torricelli, represents comfortably suburban New Jersey). According to an analysis from Citizens for Tax Justice, a Washington-based think tank, Baucus' state of Montana will do miserably under the Senate plan, ranking 49th out of 51 for average tax cuts -- 31 percent below the national average -- and dead last for cuts at the state's median income level. Louisiana and Arkansas don't do much better; they both fall below the national average, ranking 31st and 48th respectively.
When the Senate debated the compromise bill last week, the members voted down a series of Democratic amendments with the help of the compromising committee members and four of their ideological allies, Zell Miller and Max Cleland of Georgia, Thomas Carper of Delaware, and Ben Nelson of Nebraska. One amendment in particular, co-sponsored by North Dakota's Kent Conrad and Massachusetts' unabashedly liberal Ted Kennedy, would have eliminated the marriage penalty immediately (rather than phasing it out over 10 years), offsetting the cost with smaller cuts to the top bracket. While it sounds like an offer that Democrats wouldn't be able to refuse, eight did -- despite obvious benefits to their states.
It's no mystery why Baucus, Breaux, and Lincoln are left out of the tax-cutting bonanza. Louisiana, Montana, and Arkansas are poor states that house precious few of the top 1 percent who will rake it in under the proposed tax cut regime. In 2000, they were all in the bottom fifth of states by per capita personal income, ranking 46th, 47th and 48th respectively. The income disparities between these states and say, Connecticut -- with $40,640, the highest average per capita income in the country -- is astounding. In Louisiana and Montana, average per capita income is hovering right above $15,000; in Arkansas, it is $14,509.
So, why are Baucus, Breaux and Lincoln so willing to compromise -- an extended child credit here, fiddling with a tax bracket there -- with a package that fundamentally harms their states? Writing in the New York Times more than a month ago, Paul Krugman identified this paradox: Voters in the deep South and rural interior uniformly support Bush, despite the fact that their states stand to lose from the tax cut and resulting budget scramble. States like Montana and Arkansas receive more in federal subsidies from farm aid, Social Security, and Medicare than they pay in federal taxes. Did Montana's voters not get it, Krugman asked, or "were they misled by their politicians who didn't tell them that when Mr. Bush promised to cut taxes and reduce spending he meant tax cuts for the urban elite and reduced spending on farmers?"
In the case of the Senate Finance Committee, Krugman's speculation is exactly right -- rural politicians are not being forthright with their constituents. While Baucus crowed in his press release that his first priority in crafting the compromise "was taking caring of the people of Montana," the Center for Tax Justice's numbers prove that even under the Senate plan, the bulk of the tax cut still goes to the very affluent.
The Senate's plan is similar to the administration's alms-for-the-elite in the way it treats the bottom of the income distribution. Under the Bush plan, the bottom 80 percent of households would collect a pitiful 37 percent of the tax cut dollars; the Senate barely raises that number to 38 percent. In fact, the main difference between the two plans is the way the Senate Finance Committee bill allocates tax cuts among the other 20 percent. The Bush plan heavily favors the richest households, granting the top 1 percent 31 percent of the tax cut. The Finance Committee bill reins in the ultra-wealthy's windfall to 19 percent of the tax cut, distributing the rest among households in the top 20 percent.
Ruminating on the motives of Senators Baucus, Breaux and Lincoln, Bob McIntyre, director of Citizens for Tax Justice, noted, "under this bill, they'll be sending their tax dollars to the rest of the country." And as Congress clambers to pay for the tax cut by slashing the budget, their states will suffer even further. "The rest of us should be grateful that these senators are willing to take the hard earned money of the people of Louisiana, Montana and Arkansas and send it to the rest of us," McIntyre jokes. "We might not need it as much as they do, but it sure is appreciated."
Despite attempts to sell the compromise bill as a boon to middle and working-class families, it is the mini-van set -- those in the top 20 percent who fall shy of the top 1 percent -- who will benefit the most. Maybe it's no surprise then, that Torricelli, who represents New Jersey -- the ultimate suburban state -- supports the modified tax plan. It's a winning strategy in New Jersey, perhaps, but not much help in Washington, where the Democrats are counting on every vote in a divided Senate.
As for Baucus, Breaux and Lincoln, their vote likely has to do with the fact that their states were all heavy Bush supporters in November's election. But as they help the tax bill slide through the Senate, they can just cross their fingers and hope that no one tells the voters that what they've really done is neglect farm subsidies and federal anti-poverty programs to give wealthy commuters in Connecticut a wad of cash.
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