Three-Card Monte Republican Tax Scam

by Mike Hall, Apr 28, 2006

When you’re on the streets of New York and see a crowd around a man standing behind a folding table, quickly shuffling about three cards and taking bets, you know it’s a con game.

Maybe its naïve, but we expect a little better out of Congress. But when it comes to tax breaks for the rich and powerful, we’ve found out for the past six years that congressional Republican leaders and the Bush White House have the fiscal ethics of a Three-Card Monte dealer.

Their latest con game revolves around circumventing Senate rules so a tax reconciliation package jammed with about $50 billion in capital gains and corporate dividend tax cuts can win approval with just a simple majority vote instead of 60 votes.

Here’s the background. In a two-pronged attack to move Bush administration budget priorities, House and Senate Republican leaders earlier pushed through a $40 billion package of spending cuts in programs vital to working families, especially low-income families and those trying to pay for college.

But tax cut bills have been stalled in conference due to differences between the House and Senate versions. Most Capitol Hill observers say GOP leaders didn’t want a tax-cut–for-the-rich fight so soon after they slashed $40 billion from working families. It wouldn’t play too well in Peoria.

Now we hear that the all-Republican conference has put the final touches on the tax cut bill and the biggest touch of all is the $50 billion in capital gains and dividend giveaways.

This is where it gets a little complicated and where the con game starts. Under Senate rules, if a tax reconciliation bill would increase the federal deficit beyond five years down the road, it takes 60 votes to pass. According to the Joint Committee on Taxation, that’s exactly what the tax cut bill does.

The lawmaker-friends of the rich and powerful who are honchoing the bill know they can’t get the 60 votes. So they are cutting into their deck of cards and they claim to have pulled out the ace that creates new revenue that offsets the tax cuts—and so does away with the 60-vote rule.

According to reports, this is how they are moving the cards. The bill will allow high-income taxpayers to convert retirement funds now held in traditional IRAs to Roth IRAs. Because the rollover contributions to the Roth IRAs are taxable, this supposedly would create the additional revenues, reducing the bill’s overall deficit hit and thus getting by the 60-vote requirement.

Sounds clever—except for one problem: The Joint Committee estimates the Roth IRA scheme would generate revenue for a few years, but in the long run, it would produce sizeable revenue losses and add to the deficit, starting after 2015. By all rights that should mean the final bill would need those 60 votes.

But there’s one more twist. The tax cut backers claim the whole bill only needs to avoid increasing the deficit through 2015. After that—who cares. The capital gains and corporate dividend tax cuts all will be in the well-tailored pockets of the wealthy.

Besides the trickery, don’t forget this. Those tax cuts go overwhelmingly to the wealthy. Nearly half goes to the 0.3 percent of households with annual incomes more than $1 million. Less than 5 percent of the tax cuts would end up in the hands of the working family households who earn $50,000 a year or less. That’s 60 percent of us. See what two economists from the Center on Budget and Policy Priorities have to say about tax cuts for the rich.

Congressional Democrats will mount a fight against the scam and we will keep you posted on the tax cut con game. In the meantime, keep your eyes on the cards and your hand on your wallet. 

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