Deconstructionism and the 43rd President

In one of his pre-Christmas orations, the one in question to the Rotary Club in Fredericksburg, Virginia, President Bush emphatically defended his tax cuts and, in his own mind, dismissed once and for all the tiresome liberal canard that his program disproportionately favored the rich. The way he went about this was, in one of Bush's two favorite adjectives, interesting (the other one is "fabulous"). After a few lame, self-deprecatory jokes, W got right to the point:

"Now, sometimes in the nation's capital, they'll say, some people get tax cuts and others don't. That's not my attitude. My attitude was, if you're paying taxes, you ought to get tax relief. And so we cut taxes. And I mean we cut them on everybody. And when you cut them on individuals, it turns out you also are cutting taxes on small business owners. Most small businesses in America are Subchapter-S corporations, or limited liability partnerships, which means that the owners of the companies pay individual taxes. In other words, the company is subject to the individual tax rates. And so cutting individual taxes not only helps consumers and families, but it also helps small businesses."

Bush did cut taxes on everyone; how he went about it, however, does subject him to some suspicion about his true "attitude." The purpose of Bush's tax cuts was very simple. It's not quite what "they say" in Washington, as W frames it (Bush often sounds a little paranoid; who are "they" and why do they keep saying these things?). What "they say" (I've heard them too) is that the main feature, the cornerstone, the sine qua non of the program, was the reduction of the top marginal rate from 39.6% to 35% on income taxes. Junior did not quite convince Congress to reduce the rates as low as GHW Bush's 31%, which must rankle; however, Junior has the psychological compensation of knowing he couldn't because Bush the 41st ran the national debt through the roof with his tax cuts, building on the financial ruin set in motion by Bonzo's playmate.

Now, that may not sound like much. But for W's true constituency, the uber-rich, it is manna from heaven. Suppose you are the CEO of a military contractor, a Fortune 500 company, and Bush&Cheney have made you as rich as Croesus with their constant warfaring in the Middle East. You're bringing home the Fortune 500 CEO average of $400 million per year. Even after the gnomes at the firm's CPA office have worked their legerdemain, that $400 million is still heavily exposed to the nettlesome top rate of (let's round off) 40%. Clinton! First the chubby girl, now this! That's $160 million simoleons, and for what? Look what happens when you lower that marginal rate to a still-confiscatory 35%: total take by Uncle Sam is now $140 million. You just put $20 million in your pocket, enough for another vacation house in Aspen or Montauk, and will also ease the strain of paying your two alimonies and the upkeep on your trophy wife.

Why wouldn't these people love Bush? They do, that's the point. In 1944, the top marginal rate was 94%, but there was a war on, a real one, not one manufactured in order to siphon money from the U.S. Treasury to well-connected defense contractors and oil companies. Besides, people cared about the United States in those days; they didn't see the place as simply a "platform" or a casino. The point now is to pay as little as you can get away with. And that's a lot, because the current forecasts are that by the year 2010, 52% of Bush's tax cuts will redound to the benefit of the richest 1% in the "country."

So what the hell was Bush talking about with Subchapter-S and LLP's and the rest of it? Well, part of it is that Bush loves to use terms like "C corps" and Subchapter-S because it gives the appearance of some depth beyond memorization of the lingo. Very biz school. What he says is technically true; to avoid the problem of "double taxation" (taxation of the corporation and taxation of the income the corp. pays to employees) while retaining the corporate advantage of limited liability, the IRS invented these things, which in effect allow the net income of the corporation to pass through to the individual owners. Not always an unalloyed blessing. However -- so what? What's that got to do with the effect of the tax cuts? If the Sub-S owner is a very successful businessman who owns 50% of the business, and the business nets $10 million, $5 million will be attributed to him. If, say, $4 million of this is exposed to the top rate of 35%, he'll owe $1.4 million. Under Slick Willie, he would have owed $1.6 million, so he just pocketed $200,000 in exchange for becoming a Ranger donor for the Republican Party. Will he hire some more people? Maybe. Maybe he'll just blow it on a Mediterranean cruise. But who thought that "small business owners," whether they did business through a Subchapter-S corporation or out of a roadside fruit stand, didn't pay "individual rates?" Everyone pays individual rates (except for hedge fund managers, thanks to Senator Charles Schumer (Plutocrat-NY)).

What in the world is he talking about? I guess that's my question. "Small businesses" are individuals. That's what makes them "small," as opposed to, say, Halliburton. So let's see if we can analyze Bush algebraically as well as deconstructing this gibberish verbally. "Small business owners" = business run by individuals = individuals. Substituting in the term "individuals" for "small business owners" yields an expression reduced to simplest terms, namely, "it turns out when you lower rates on individuals, you are also lowering rates on individuals." I can live with that. Surviving another year and 25 days is an open question.