Are Lower Taxes Really Benefiting All Americans?

Viewed another way, the supposedly beneficial tax cuts highlighted by a recent study actually contribute to something else for American taxpayers: a huge future liability.

On Monday, USA Today published a story highlighting a recent study of IRS data which found that Americans at all income levels (not just people of high net worth) benefited from the Bush administration’s tax cuts.

“Americans of every income have benefited from a drop in federal income tax rates as Bush administration tax cuts enacted since 2000 took effect, an independent analysis of newly released IRS data shows,” reported USA Today. “The review by the Tax Foundation, a non-partisan research group that favors low taxes, provides one of the first detailed looks at the impact of federal tax changes phased in between 2000 and 2004.”

Afterwards, various bloggers pointed to the article as vindication of the administration’s economic policies.

“This pretty much blows the Dems line of ‘Tax Cuts for the Rich’ completely out of the water,” noted Morning Coffee.

But before the celebrating gets too out of hand, it is worth highlighting some recent articles that offer a deeper perspective on where all that tax relief is coming from — that is, in part, from the pockets of future American taxpayers.

Last week, Kevin G. Hall of McClatchy Newspapers wrote an excellent article about the skyrocketing federal budget deficit — and the fuzzy math that politicians have been using to try and disguise it.

“The U.S. government closes the books on fiscal 2006 Saturday, and politicians are likely to trumpet that the federal deficit came in almost $60 billion below projections,” wrote Hall. “Problem is, they won’t be using the same math you use.”

“Washington’s funny math excludes the Social Security trust fund, which is running a $177 billion surplus this year,” he added. “Washington spends it, but doesn’t count it as spending. It’s officially listed as ‘off-budget’ borrowing.”

“Spending trust-fund money to mask the true size of the federal deficit is a longtime Washington gimmick, but even so, Heritage [Foundation] calculates that the Bush administration and the Republican-led Congress have increased government spending by 45 percent since 2001,” wrote Hall.

Combine the increase in spending with the cutbacks in federal revenue thanks to those uniformly beneficial tax breaks, and what is the result? A country on shaky financial footing.

“Comptroller General David Walker, the nation’s chief accounting auditor, has added up all the federal government’s unfunded liabilities, or promises, and offers a present-day figure of $46 trillion,” concluded Hall. “Think of that as promises to the tune of $155,932.18 for each of the 295 million Americans.”

In other words, looked at another way, those supposedly beneficial tax breaks actually contribute to something else for American taxpayers — a huge future liability.

And as Daniel Gross pointed out in the New York Times in an interesting article, the recent hikes in interest rates mean that American taxpayers are already getting hit with higher and higher bills on all that debt.

“Each year, the national debt grows,” wrote Gross. “Congress spends more than it is willing to raise in taxes, so it finances operations by selling debt to the public. In the last five years, the gross national debt, which includes bonds pledged to fund Social Security and other entitlements, has risen 46 percent, to about $8.5 trillion, from $5.8 trillion at the end of September 2001.”

“According to the Bureau of the Public Debt, the average interest rate paid by the government on public debt rose to 4.853 percent in August from 4.176 percent in the same month last year — a 16 percent increase,” reported Gross. “As a result, the government’s interest bill is expected to rise to $220 billion this year from $184 billion in 2005.”

Added Gross, “This extra $36 billion makes interest the fastest-growing component of federal spending, noted Adam Hughes, director for federal fiscal policy at OMB Watch in Washington.”

That should put a slight damper on the notion that all is well for American taxpayers. But bad news in good stories is better than good news in bad stories.

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Felix Gillette writes about the media for The New York Observer.