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What Impact Would Bush's Tax Plan Have on America?

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

KYRA PHILLIPS, CNN ANCHOR: Now, President Bush will spotlight his trillion-dollar budget plan this week when he speaks to a joint session of Congress.

CNN's Kelly Wallace joins us now from the White House with more on Bush's plan and the week ahead. Hi, Kelly.

KELLY WALLACE, CNN WHITE HOUSE CORRESPONDENT: Hi there, Kyra. Well, in his radio address yesterday, President Bush compared a federal budget to a telephone book. He said it's about the same size and about as difficult to read. But he's urging Americans and lawmakers to focus on one number. And that is the projected federal budget surplus.

The president and his aides believe in the Congressional Budget projections, which say that the federal budget surplus would grow to about $5.6 trillion over 10 years. And the President and his aides say this means that the President will be able to pay for everything he is proposing. He will propose in his budget that he will pay down the debt and he will protect Social Security, that he will increase spending on priorities such as education and Medicare and that he will also give Americans a $1.6 trillion tax cut.

The president's saying -- another argument his is likely to make in that address to a joint session of Congress Tuesday night, is that if Americans are not given some of the surplus back in the form of a tax cut that Washington lawmakers will go on a spending spree.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I believe that good monetary policy, good fiscal policy, good regulatory policy, good trade policy will enable our economy to grow beyond the scope that is envisioned in the current project projections.

Secondly, I believe, as well, that if we don't pass some of the money back to the people that pay the bills, it is going to be spent. And I worry about a bloated federal government as -- serving as a drag on economic growth.

(END VIDEO CLIP)

WALLACE: But to pay for the President's tax cut as well as the increased spending in other areas, the President and his aides will have to reduce spending on other government programs. And they're saying that the President will no longer have a general increase in government spending of about eight percent, something that has been going on over the past four -- three years. Instead, he is going to basically increase the growth of general spending of about four percent, just about the rate of inflation.

So far, Kyra, White House officials have been tight-lipped about where some of these cuts will come from. We know the White House looking to cut some corporate subsidies and get rid of some other programs the White House said has outlived their usefulness. But again, that is likely to be a big focus for the President this week.

Democrats object to a tax cut plan, thinking it's too large. Some lawmakers, also not likely to see cuts in some of the programs that they like to support. Kyra, back to you.

PHILLIPS: All right, Kelly Wallace live at the White House. Thank you so much. Still though, what is the significance of the President's budget plan especially that tax cut in your financial house? We're joined by two guests who will discuss the pros and cons of Bush's budget plan. Scott Hodge, the Executive Director of the Tax Foundation. He's in favor of Bush's plan. And Mark Weisbrot is with the Center For Economic Policy and Research. He says Bush's budget has some drawbacks. Both men are in Washington to talk about this and to join us for a tax debate. Gentlemen, thanks for being with us.

SCOTT HODGE, EXECUTIVE DIRECTOR, TAX FOUNDATION: Good morning.

MARK WEISBROT, CENTER FOR ECONOMIC POLICY AND RESEARCH: Thank you.

PHILLIPS: Do you think a good way to go here -- should we talk about across the board versus targeted cuts? Do think that's a good idea? Should we begin there?

HODGE: Well, I do. Absolutely.

PHILLIPS: Well, let's start there.

HODGE: Targeted tax cuts allow politicians to use the tax code sort of like pork barrel spending -- choosing one favored constituency over the another. While across the board tax cuts clearly benefit every working American who pays taxes. And the actual positive aspect of across the board tax cuts is they that help jumpstart the economy. They encourage people to save and invest and work harder and put money back into their businesses and grow jobs. And you don't get that same economic boost from these kinds of targeted tax cuts.

PHILLIPS: Mark, what do you think?

WEISBROT: Well, I -- yes, I'd have to disagree. First of all, this is not going to do much for the economy at all. And second of all, it is very skewed towards the richest households and taxpayers in the country. For example, 43 percent of this $1.6 trillion tax cut will go to households in the upper one percent with an average income of $915,000.00. And they will get an average tax cut of about $46,000.00 whereas for 60 percent of households, many of them will get nothing. The average tax cut is about $227.00. So that photo op that you saw of the Lexus for the upper one percent and the muffler for most -- for the typical taxpayer was actually quite accurate.

PHILLIPS: Well, that has been a big push here -- is that Bush's tax plan. This is all centered about lower income families, working families and you know, helping them rise up...

WEISBROT: But it's not true at all. So for example, if you look at a single mother making $11.00 an hour for working full-time all year round -- two children -- she won't get anything at all not even the child tax credit...

HODGE: Well, it -- wait a minute. As Mr. Weisbrot knows, that woman paying -- earning $11.00 an hour is not paying any income taxes at all. In fact, she's receiving a generous subsidy under the -- in an earned income tax credit. In fact...

WEISBROT: But she's taking payroll taxes.

HODGE: Well, that's a separate issue that we can solve using payroll tax reductions. But you can't some of these problems through the Income Tax Code.

The top 50 percent of all income tax filers pay 96 percent of all the income taxes in America. So by definition, when you cut income taxes, you're going to benefit the top 50 percent of tax filers. And you cannot physically give tax relief to people who don't pay income taxes.

Now, we can do other things to benefit those people -- cutting excise taxes, which are terribly regressive, cutting payroll taxes. But you cannot achieve these things through the Income Tax Code. And so, an across the board tax cut will benefit those people in the top 50 percent, those dual income working families who are trying to make it by and pay those bills and put bread on their kids plates. But you can't do that through the types of measures that Mr. Weisbrot is talking about.

WEISBROT: Well, actually you can. You can refund and that's what the earned income tax credit does. And that could be increased quite a bit...

HODGE: That and as you know that's an income subsidy as part of the welfare...

WEISBROT: It's a...

HODGE: ... it's part of the welfare state.

WEISBROT: No, it's a...

HODGE: And what we're talking about...

WEISBROT: ... refunding of the taxes that they're paying. They're paying, look four out of five families...

HODGE: They're not paying any income taxes.

WEISBROT: They're paying payroll taxes. That's just a technicality. I mean they're still paying federal taxes and this money could be refunded. If we really wanted to jumpstart the economy, this is the people who should get the rebate because they're the ones that are going to go out and spend it as well. So this is really -- the Bush plan is really just an attempt to rewrite the Tax Code in a way that will shift the burden of taxation even more away from the richest, the wealthiest households in the country to the people who can least afford to pay it.

PHILLIPS: Mark, what about the marriage tax plan? How -- are the marriage tax play into all of this -- penalty?

WEISBROT: Well, I think, you know, there you could have some tax relief that could make the Tax Code more equitable. But the proposal on the table would actually increase the marriage bonus for the millions of couples who have a marriage -- for many of the millions of couples who have a marriage bonus. It is also skewed towards upper income households. If you wanted to you could take care of that more easily simply by allowing married couples to file, as you know, individuals. But that's not what this does.

PHILLIPS: Scott?

HODGE: Well, clearly, we have changing demographics in American society where the dual income-working household is the norm. Ozzie and Harriet is no longer the norm in American society. And so you have more and more moms going into the workplace. And every dollar they earn that goes towards their family's income is being taxed at a higher and higher rate, penalizing mom for trying to work and trying to have a career and trying to improve the life of their family. And that's truly not fair.

And so something like the measure that's in the Bush plan, which would begin to address the marriage penalty is a good step in the right direction to removing those penalties on moms trying to have a career and work to the betterment of their family.

PHILLIPS: Scott Hodge, Mark Weisbrot, guys, I know this debate will continue. We have to leave it there. But we will do it again. And we'll be following the outline to Congress, definitely this week, from President Bush. Thanks, gentlemen.

WEISBROT: Thank you.

HODGE: Thank you, Kyra.

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