When Tax Cuts Bite Back

Long-time readers know I like to refer to kudzu when talking about the law of unintended consequences. Now it seems there's a delicious example WRT the Bush Tax Cut:

[Teresa] Heinz Kerry’s husband wants to restore the tax cuts that Bush has made to the top two brackets, [critics] said, so how can she face herself in the mirror when she paid taxes of only 12.4 percent on her income? “She is paying a lower average rate than nearly all middle-class taxpayers paid in 2001,” huffed The Wall Street Journal’s editorial page, the high priests of all-tax-cuts-all-the-time orthodoxy.
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Look at Heinz Kerry’s tax return and you see that a major reason she paid so little tax is … President Bush—specifically, his controversial tax cut forced through Congress last year, reducing the maximum rate on dividends to 15 percent from 35. Had the top rate on dividends remained at 35 percent, calculate the tax mavens at financial publisher CCH, who reviewed her tax return for NEWSWEEK, Heinz Kerry would have paid around $918,000 in taxes rather than $628,000. Without that cut—which her husband opposed—Heinz Kerry’s tax would have been almost 50 percent higher.
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And now, if you’ll indulge me, an example of how lower taxes cut both ways. The dividend-rate cut that makes Heinz Kerry a nifty target for the Bushies is also helping pay for the anti-Bush efforts of Peter B. Lewis, who’s given more money to defeat Bush than even billionaire George Soros.

This gets a tad complicated, so please bear with me. Lewis is the chairman of Progressive, the auto-insurance company, and owns more than a billion dollars of its stock. Earlier this month, Lewis got $96.8 million by selling some of his Progressive shares to the company, which was buying back lots of stock from existing holders. Because Lewis’ proportionate stake in the company increased as a result of the buyback, his $96.8 million is treated as a dividend, not as proceeds from selling stock.

Thus, Bush’s 20-point cut in dividend tax rates is saving Lewis a ton of money—call it $19.4 million. According to the Center for Responsive Politics, Lewis has given $18.9 million to anti-Bush organizations. In other words, what Bush has saved Lewis on this one transaction covers Lewis’ cost of battling Bush, with half a million bucks of walking-around money left over.

You’ve got to love it. Bush’s tax cuts, which the Bushies bash Heinz Kerry (and by extension her husband) for accepting, are financing Peter Lewis’s attacks on Bush. This, fans, is an irony to relish.

Mmm...relish...

ntodd