Jerry Bailey is precisely the kind of taxpayer President Bush had hoped to bestow his tax cuts on: an entrepreneur brew-pub owner, a job provider, not overly rich by Washington area standards but well off enough to pay a hefty sum to the federal government each year.
But after three tax cuts in three years, the part-owner of Loudoun County's Old Dominion Brewing Co. is not exactly celebrating his gains. Sure, his federal tax bill was trimmed, by a healthy $5,600, according to a rough calculation by Clint Stretch, director of tax policy at the accounting firm Deloitte & Touche LLP.
Airline copilot Al Aitken says property taxes have eaten up his federal tax savings and then some; maintenance mechanic Donald Belton faces rental inflation; brew-pub owner Jerry Bailey says his late-'90s profits have evaporated.
(Gerald Martineau -- The Washington Post)
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But other factors having nothing to do with federal taxes have clouded Bailey's situation. This year, the property tax bill on his Bethesda home will reach $6,725, a $950 increase over his payment four years ago. The annual cost of his 56-mile-a-day commute has jumped more than $300 since 2001, and the long, slow decline of business profits these past four years has left Bailey far behind, no matter what his federal tax payment may be.
"I'm not paying any taxes at all because we're not making any money," Bailey said with a sigh. "I loved paying taxes. It meant we were doing all right."
As the Democrats converge on Boston this week to nominate their presidential candidate, the rhetoric around the economic policies of the past 42 months will doubtless be shrill. At first blush, the Democrats' case may seem like a hard sell. Economic growth has returned. Job growth, while slow, has perked up over the past 12 months. Most of all, Republicans may expect some gratitude for cutting taxes by more than $1.7 trillion over the next 10 years.
But many Americans feel they have lost ground since 2001, and a solid 71 percent are convinced they have received no tax cuts at all. A poll by CBS News and the New York Times in March found that only 22 percent believe the policies of the Bush administration made their taxes go down; 25 percent said their taxes actually went up.
Taxpayers in the Washington area at the highest income levels appear to have profited handsomely from the tax cut, as one Cleveland Park businessman's tax returns show. Further down the income scale, some people barely broke even, as Alverta Munlin and Donald Belton can attest, after local taxes and rising costs of living were factored in. And some struggling middle-income families, such as that of Serkalem Nessibu, lost their entire tax cut to things like the rise in their property tax because of the increased value of their home. Presumably, the numbers would have been worse for many people had they not had their federal taxes cut; but these other demands on their money help explain why some taxpayers may dismiss the tax cut and instead focus on their reduced bottom line.
True, rising property and sales taxes at the local level have clawed back as much as 27 percent of the federal income tax cuts, said Mark Zandi, chief economist at the research firm Economy.com. Nonetheless, he said, personal income tax payments have fallen about $200 billion since Bush took office.
"I don't think there is any doubt that [the tax burden] has dropped," said Greg Jenner, acting assistant Treasury secretary for tax policy. "The statistics are irrefutable, and it's absolutely clear that the American people are better off because of the tax cuts that the president proposed."
Since early 2001, state and local taxes have actually fallen as a share of personal income, said Mark Warshawsky, assistant Treasury secretary for economic policy, from 6.3 percent of income to 6.1 percent. Factor in federal taxes and the total tax burden has plunged from 18.3 percent of personal income to 13.9 percent.
