The Class War's Next Attack
The tax cut is just the beginning
by Geov Parrish
In These Times magazine, July 2001
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
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 to companies.
Bob Mclntyre, director of the Washington-based Citizens for
Tax Justice, says O'Neill's idea is going nowhere. "He's
just talking through his hat," Mclntyre scoffs. "I don't
know what his motivation is, other than he shoots from the hip
constantly." Mclntyre is dismissive because of the difficulty
of attributing corporate income to individuals, when ownership
(the shareholders) continually changes.
But O'Neill skirts the problem by simply proposing 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
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.