Thursday, June 28, 2001

Swift "Tax Cut":
We know tax cuts, tax cuts are friends of ours
... and this is no tax cut

Not to be picky, but as we hold schools accountable for teaching kids English and stuff, shouldn't we all be a little more precise in our use of the English language?

A tax cut is when someone who pays taxes either gets to pay less -- as with the state income tax rollback -- or gets a refund -- as with President Bush's coming rebate check.

Those whose income (or lack thereof) isn't subject to taxation don't pay income taxes. Obviously, if you don't pay income taxes, you can't have an income tax cut. If some don't qualify for either the state rate cut or the federal refund, they don't pay income taxes. If the government gives them taxpayers' money, it's an expenditure.

This may or may not be a good idea, but it is not a tax cut. The "earned income tax credit" is not a tax cut. Neither is yesterday's administration proposal.

The Swift one-time subsidy is several things: an attempt to do "something nice" for families that are left out of income tax cuts because they don't pay income taxes; a media event, brilliantly orchestrated during budget doldrums; an effort to remove some state surplus from legislative temptation; a "gotcha" on gubernatorial challenger Tom Birmingham.

But it's not a tax cut.

When dealing with a budget surplus: a tax cut would be if the state did what it promised in 1986 when the state stabilization fund was created. The revenue surplus would go into a state stabilization fund, then -- when that is full -- the overflow would go into the tax reduction fund.

When there is enough money in the tax reduction fund to make it worthwhile, the state calculates a one-time increase in the personal exemption -- for all taxpayers.

This is not as good as indexing the personal exemption, the way the federal government does, but it's fair and it's an honest tax cut.

Unfortunately, over the past decade or so, and over CLT's objections, the stabilization fund cap has been raised twice to avoid having money flow into the tax reduction fund. But when the "rainy day" fund is finally full, the surplus should go into the tax reduction fund and be returned to all the taxpayers with an increase in the personal exemption.

Spending programs should be called spending programs, not tax cuts.

Return to CLT Updates page

Return to CLT home page