Cameras clicked away on June 7 as George W. Bush signed into law
one of history's largest tax cut measures, shoveling an astonishing
percentage of its benefits into the pockets of the country's wealthiest
taxpayers. Despite four months of bleating from the left side of
the aisle, the tax cuts faced only token congressional opposition--almost
all of it focusing on the size of the cuts, not their economic structure.
Congressional Republicans guided the plan through a docile Senate
and worked out a compromise with the House version of the bill,
which passed in a matter of days. While the networks focused on
the "drama" of Bush's self-imposed deadline for cementing the deal,
Treasury Secretary Paul O'Neill was quietly sketching out what he
hopes will be the next set of radical economic victories.
In an interview published on May 18 in London's Financial Times,
O'Neill laid out in some detail his desire, among other things,
to privatize and rework Social Security and Medicare; to eliminate
the capital gains tax on businesses; and, most strikingly, to abolish
the corporate income tax. As the Financial Times put it:
"Mr O'Neill ... says he 'absolutely' wants to eliminate corporate
income tax. He also wants to do away with capital gains taxes on
businesses, and indicated the administration was prepared to put
this on a shorter-term agenda. ... The fact that one of the most
senior cabinet members would lay out such a detailed and radical
programme is a sign that the administration has not been deterred
by opposition to its initial tax-cut plan." In the article, O'Neill
implied that Bush himself was "intrigued" with the ideas.
Before O'Neill joined the Bush administration, he was chairman
of Alcoa. But like his friend Dick Cheney, the bulk of O'Neill's
career--dating back to his days as a deputy director of the Office
of Management and Budget under Gerald Ford--has been spent as a
Washington insider. Generally considered a moderate Republican,
O'Neill cited his philosophical desire to abolish the corporate
income tax during his confirmation hearings in January; he was then
confirmed with overwhelming bipartisan support. A philosophic preference
by a nominee, however, is not the same as a plan advocated by a
senior cabinet member. His comments to a foreign newspaper were
the first time a ranking Bushite has laid out abolition of the corporate
income tax as a specific policy goal.
In his interview, O'Neill acknowledged that abolishing the tax
would probably mean both lower government spending and higher personal
income tax rates. The corporate income tax now accounts for about
10 percent of the federal budget. According to Chuck Collins of
Boston's United for a Fair Economy,
that's down from a peak of about 33 percent in the mid-'50s. "It's
part of a long-term strategy of shifting the tax burden," Collins
says. "It's a shift of the burden from corporations to individuals,
from the rich to the poor, from big business to small business.
It's an overall trend toward regressivity."
While tax cuts for wealthy individuals, such as efforts to rip
away at the capital gains tax, have been visible and often contested,
the tax code changes that have reduced corporate taxpaying have
been quiet, bipartisan affairs. Perhaps the most important came
late in the Reagan era: the Tax Reform Act of 1986. It popularized
the "S Corporation," a vehicle by which corporations could channel
profits directly to individuals, avoiding corporate tax rates and
enabling the individuals to pay lower rates and use deductions unavailable
Bob McIntyre, director of the Washington-based Citizens
for Tax Justice, says O'Neill's idea is going nowhere. "He's
just talking through his hat," McIntyre scoffs. "I don't know what
his motivation is, other than he shoots from the hip constantly."
McIntyre is dismissive because of the difficulty of attributing
corporate income to individuals, when ownership (the shareholders)
But O'Neill skirts the problem by simply proposing that that income
not be taxed at all. "I think there is a conservative ideology that
says, 'let's tax income at the point of transfer,'" says Collins.
"Corporations as entities have responsibilities, and [like individuals]
benefit from each transfer. They don't seem to have any compunction
about receiving subsidies and corporate welfare."
O'Neill, like many conservatives, argues that the corporate income
tax is really a personal tax, as corporations simply pass along
the cost to consumers. This is only partly true. Companies such
as Microsoft, military contractors or pharmaceutical giants price
their products not based on overhead and production costs, but on
how much the market will bear. The chances that retail prices will
drop if corporations no longer pay income taxes are slim to none.
O'Neill's comments reveal the full extent to which the Bush radicals
want to rewrite the rules. But the U.S. media almost completely
ignored the Financial Times interview. Only the Washington
Post carried an account devoted to the London story two days
later. The foreign interview seemed designed to alert financial
and political players, while keeping the public in the dark. Neither
the Financial Times nor the Post challenged O'Neill's
rosy arguments that his desired reforms would "promote economic
growth" and "improve U.S. global competitiveness." Nor did either
outlet mention the likely exacerbating effect on America's record
income gap between rich and poor.
Is abolishing the corporate income tax just a wild O'Neill pipe
dream? Perhaps. But the odds that such sweeping reforms could become
law--even with the Democrats now controlling the Senate--are far
better than they seemed in January, when the Senate gave O'Neill's
visions a nice pat on the head at his confirmation hearing. Since
then, a stunningly regressive tax plan has been signed into law
with the approval of 46 Senate Republicans (including subsequent
turncoat Jim Jeffords) and 12 Democrats.
Could another radical plan--to privatize Social Security, revamp
Medicare or abolish the corporate income tax--win approval? It seems
almost certain that the Bush White House will propose still more
regressive reforms. And many Democrats are happy to go along with
the program--making the wealthy much, much wealthier, at the expense
of everyone else.