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Bush's tax cut plan needs tweaking

PART OF the Republican mantra is that people should be trusted with their own money first, and turn it over to the government second. The appropriate time to turn it over is the tricky part, and should be the sole motivation for a possible tax cut by the Bush administration.

There are some projects people won't accomplish on their own. Economists call them public goods or collective action problems because no one person will fund them, and once they are in place, everyone else gets to free ride on the benefits. A good example is a capable military - no one person can buy all the military firepower a country like the United States uses, and once the defense is in place, it protects everyone.

The government funds many projects like the military with our yearly tax revenues - social security, infrastructure, Medicaid and Medicare. These projects are too big for individuals to develop on their own and often help those who simply can't help themselves.

The government isn't always the most efficient way to get the everyday tasks accomplished, however. Taking the example to the extreme of communism proves the point - government-allocated resources get lost in a sea of bad decisions and misuse.

But mismanagement can occur outside of the extreme of communism. The U.S. has one of the least heavily taxed societies in the world, and yet we lose millions in the halls of giant bureaucracies. The debate over health care is an excellent example - attempts to universalize coverage mean well, but as of yet have not developed a plan to eliminate the high amount of waste when compared to the privatized system we have today.

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    The future of social security is another public/private debate - would we be better off investing that money in the private sector, as individuals, or continuing to hand it over to government coffers?

    Bush's tax cut seeks to answer this age-old question with the classic Republican party line - whenever possible, give the people their money back. This time, he's justifying the cut with a nod to the faltering economy. The logic goes that if he cuts peoples' taxes, that money will go back into circulation and jump-start lagging sales. This also is part of his justification for giving such a large cut to the wealthiest 1 percent - the so-called lexus cut. These people, he figures, will be most likely to dump that money back into the economy rather than put it away. Plus, they paid it in, so they should get it back.

    Bush's logic makes sense in the abstract, but looking at the numbers, the plan needs tweaking. There's a huge rebate gap between the top 1 percent and the next 99 percent. The top 1 percent gets $46,000 back, but the 95-99 percent range gets only $2,330. The next bracket down, 81-95 percent, gets $1,447. Everyone below that gets chump change ("Better, Simpler, Fairer," The Washington Post, Feb. 12).

    The top 1 percent - those making an average of $915,000 a year - don't really need that extra money. Chances are, with or without that tax cut, everything they're going to invest is invested, everything they're going to save is saved and most of what they're going to spend is spent. If they do spend more, it will be on true luxury goods in very narrow sectors like an extra Lexus or a trip to Europe. These are averages - people who make much more than that will be getting more money back, and probably will use some of it for investment purposes, but the benefits are marginal.

    On the other hand, the biggest chunk of U.S. taxpayers will be getting somewhere between $1,000-2,000 back. The effects of that money in peoples' pockets are unpredictable, and the best use of that money is impossible to guess. Americans have the lowest savings now than they have had in years. This lack of fear probably was fueled by the rosy predictions for the new economy.

    Now that Bushies and higher-ups are predicting slow-down at best, the middle class could get scared and either use that money to pay off astronomical credit card debt or to save away. Neither would jump-start the economy like Bush is hoping. These savings are important, but $2,000 a year won't make or break a bank account.

    And with the new warnings about the economy, those who could afford to pay things off and put more money away will anyway.

    The way Bush's tax cut is structured now won't accomplish his stated objective. Instead of reinforcing the habits of the very rich and not helping the lower and lower-middle class, the cut should be restructured to put the money where it should go. Those projects mentioned above can't disappear, and with a potential recession on the way, that money might best be used in the government's safe keeping. But, if the economy is just settling into a rut as most are predicting, a tax cut is a good idea, but must be implemented better than Bush's plans. Give credit where credit is due - to those who have paid in - but also give those who could help the economy the chance to do so.

    (Emily Harding's column appears Wednesdays in The Cavalier Daily. She can be reached at