The Republican Party often criticizes the Democratic Party for engaging in class warfare. Republicans claim that such practices pit the middle class against the rich and are divisive for the nation.
With unemployment at a 9-year high, the President proposed a $670 billion economic stimulus package designed to jumpstart the sluggish U.S. economy, which Democrats immediately and predictably denounced as heavily favoring the wealthiest portion of society.
However, for the Democratic Party to point out that President Bush's economic stimulus package is weighted heavily toward the richest segment of the population not only fails to meet any class warfare standard, it happens to be the truth.
It would be disingenuous to suggest that there is nothing in the President's proposal to help middle and low-income workers. The President's plan offers "outside the box" thinking, calling for up to $3,000 in unemployment accounts to assist with defraying the cost of job training, child care and, if necessary, relocation expenses.
Because this proposal is directed at no more than 1.2 million people, the price tag for this piece of the economic stimulus proposal is a mere $4 billion. A rather paltry sum when one considers that $364 billion of the $670 billion is eaten up by the President's proposal to cut the dividend tax.
The difficulty with such a large portion of the President's economic stimulus package dedicated to the dividend tax is that there is no direct link to economic stimulus. According to November 2002 data for the Commerce Department, earnings on dividend income would be roughly $444 billion in 2002, compared to the total earning income of $9 trillion. Of the $444 billion of dividend income the majority went into 401(k) and other tax deferred plans, this means that many who earn dividends will not notice the tax cut for quite some time.
Furthermore, most dividend income goes to wealthy Americans. According to the Internal Revenue Service in 2000, which is latest data available, 63 percent of all dividend income taxed was earned by families making over $100,000 or more, which is less than 9 percent of all taxpayers. And according to Citizens for Tax Justice, roughly half of that income would go to people earning more than $350,000 a year, or the top 1 percent of Americans.
The President makes the argument, and rightfully so, that dividends are taxed twice. Companies pay dividends out of earnings that have already been taxed, then shareholders pay tax on dividends received.
This perceived injustice to the wealthiest Americans notwithstanding, where is the "stimulus" portion of the dividend income proposal?
With the majority of the dividends going directly into 401(k) plans, with the benefits to be realized at a later date and no clear linkage between dividends received and economic stimulus, this proposal, as stated by Lacy Hunt, chief economist at Hoisington Investment is, "A non starter." Adding that, "The economic impact is very, very, small-almost imperceptible."
The bulk of any stimulus package must be directed toward those who are looking for work, who are having difficulty paying for their children's education, or those simply trying to keep pace with the increasing cost of prescription drugs; in short, there must be emphasis on the areas of the economy where the need is the greatest.
The president has chosen to place the emphasis of the stimulus package on those who are already economically stimulated. Though one could make an effective argument that it is unfair that dividend income is taxed twice, it is unjust that so much of the stimulus package benefits those best equipped to survive the current economic downturn.
Moreover, with unemployment at its highest since 1994, to emphasize the majority of the stimulus package on that which offers very little if any stimulus is not class warfare it just bad public policy.