Here's To The Little People

Most Americans could be forgiven some confusion during the State of the Union address when the president said solemnly, as though he were reciting a key section of the Constitution, "I ask you to end the unfair double taxation of dividends."

Given the price of gas, the price of meat and the price of a teenager's North Face jacket, the average citizen had probably not focused as closely as George W. Bush on that particular financial hardship. The linchpin of the president's so-called economic-stimulus package has been ditching taxes on corporate dividends. By all statistical measures this is a gift to the affluent, and it's generally agreed in Washington that it's a nonstarter from a legislative point of view. But it showed up in the big speech nevertheless, along with worthier initiatives like AIDS relief for Africa and more pressing issues like the case against Saddam Hussein.

The deficit is growing, economic growth is slowing: it's indisputable the economy is in a mess. The investments that were once going to pay for a college education are now good for maybe three years' tuition, not four. State governments are in a crisis more severe than any we've ever seen. Governors are cutting essential services, health care and child care and even the length of the school year, unable to go back yet again to the overtapped well of state taxes and surcharges. If the mantra of the first Clinton campaign was "It's the economy, stupid," the motto of the Bush White House should be "It's the states." Yet the administration made cutting corporate dividends its highest economic priority.

In the last analysis this is more dangerous for the image of the Republican Party than Trent Lott. The party has never shaken its identity as a club for rich guys. When Ronald Reagan's budget director David Stockman talked about "trickle-down economics," he felt compelled later to say that his choice of words had been "terribly unfortunate." They were unfortunate because they cemented a prevailing sense of Republican policy: let the wealthy hang on to their money and they will hire more maids. Or, as Leona Helmsley once said, "Only the little people pay taxes."

Geyser economics is more like it, straight up and surging. Large corporations make enormous contributions to political campaigns. Tax policy favors those corporations in a variety of ways. Ordinary consumers pay inflated prices for the products of those corporations. (Interesting, the difference in cost between prescription Claritin and the same over-the-counter drug.) The companies make a lot of money, a disproportionate share of which often goes into the pockets of top executives. Oh, and into those political contributions.

Those freaked out by "Das Kapital" in prep school like to argue that rich people are unfairly taxed, that the highest-earning Americans are responsible for by far the biggest chunk of federal income-tax revenue, that the progressive tax amounts to--holy Karl Marx!--redistribution of income. This ignores three things. The first is that income tax tells only part of the story. Factor in payroll taxes, sales taxes, state taxes and the like, and the playing field is more or less level. The second is that the playing field is never level. Redistribution of income is taking place, but mainly because it is being distributed upward. Executive jobs often have built-in perks that make them even more remunerative than salaries or bonuses would suggest, and have the net effect of lessening much of the burden income taxes impose. The little people pay for their own seats at the ballpark.

The third is that where the economy is concerned, the facts and figures aren't all that matters. When people read that the former chairman of Tyco charged the company for an umbrella stand--a really ugly umbrella stand--that cost about half of what a beginning teacher makes in a year, the result is a serious problem of perception. Add some sticker shock at the supermarket and a kid saddled with crushing student loans, and you have a marked economic downturn, at least anecdotally. This can be as real and yet as evanescent as the scent of smoke. After the gulf war the first President Bush kept insisting there was no recession in America. By the conventional numbers there wasn't. But voters smelled trouble. The rest is history.

It's a tough time for the Republicans to convince Americans that they're not the silver-spoon party, since their president has a biographical drawerful of monogrammed tableware. A fervent appeal to cut the dividend tax, a classic trickle-down ploy, is not the way to go. Live dangerously: eliminate all income taxes on those earning below $50,000, which would cover most teachers and cops and lots of nurses, as well as many black Americans. That's not really a bold stroke, since for many of those workers federal income tax is the least of their problems, but it might build good will. Then cut payroll taxes for real relief, and pretend the states are foreign countries and give them substantial foreign aid so they can reinstate essential services. Much of this could be paid for simply by forgetting about those cuts in the dividend tax. Maybe then a little trickle-down populism could attach itself to the Republican Party.