(2 of 3)
Yet the sponsors of the bill--those who know it best--are hard-pressed to explain it. Topping the list of odd features is the "sunset" provision that repeals the entire bill at the end of 2010. Budget rules require Congress to include a sunset clause in all major tax legislation, but this sunset arrives a year early--after 10 years instead of the 11 years covered by the current budget resolution. That year was shaved off to keep the total cost of the bill under $1.35 trillion. By repealing the legislation in the 10th year, Congress saved billions of dollars. Without the repeal and a few other tricks, the cost of the full 11-year plan would balloon to more than $1.8 trillion by the end of 2011, far exceeding anything the Democrats would vote for. And the cost in the second decade would reach as much as $4 trillion. Even some conservatives on Capitol Hill are dismayed by the apparent dishonesty of the early sunset. After both parties agreed to a smaller tax cut, the conference committee pulled a fast one.
These bigger numbers remain relevant because no future Congress wants to commit political suicide by allowing this tax cut to expire. Simply stated, all of Washington knows many of these provisions are in effect permanent. The Big Lie is that it costs only $1.35 trillion. Since the real cost is much greater, future Administrations--and Congresses--will have to deal with a political nightmare: the real possibility of deficit spending a decade from now as baby boomers begin to retire en masse and sap the Social Security and Medicare systems.
For individual Americans, the tax cuts play havoc with estate planning. Starting next year, when the estate-tax exemption rises to $1 million per person (instead of the current $675,000), rates will decline and taxpayers will be able to leave more to their heirs on a tax-free basis. But the estate tax doesn't disappear entirely until 2010--and a year later, unless Congress acts, the tax is restored to what it is today. This is absurdity of the highest order, making dying in 2010 so attractive for the rich--and dying in 2011 so unappealing--that wags say some millionaires will pull their own plugs early to shelter their wealth.
The shell game gets ridiculous in its treatment of corporate taxes. One provision delays the collection of $33 billion of estimated corporate taxes from Sept. 15 to Oct. 1 this year. Why? By pushing the collection into the next fiscal year, the bill makes this year's immediate relief look larger. "Republicans had to make sure it looked less dangerous by packing it with every kind of gimmick and sleight of hand I have ever seen," fumes Rangel.
The tax bill isn't all bad. Beginning in 2002, it introduces a generous college-tuition deduction that increases up to $4,000 a year. But that lasts only through 2005. The bill expands the education ira to an annual contribution limit of $2,000, up from just $500, and for the first time permits that money to be put toward private elementary, middle and high school costs. Some see that as a stealth move toward a voucher system because it helps more families afford private school and thus undermines public education.