Statement of Senator Dianne Feinstein on How California Taxpayers Lose Under the Bush Tax Cut Plan

January 17, 2003
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Washington, DC - California State Treasurer Phil Angelides has released a report that describes the impact of President Bush's tax cut plan on tax-exempt bonds, which are used to finance local and state public projects.

"This report highlights the potentially devastating cost to the State of California if taxes on corporate dividends are eliminated," Senator Feinstein said.

According to the report, California could be forced to pay up to $17.2 billion over the next ten years in additional interest costs on municipal bonds were the dividend tax cut to be approved as proposed. Nationwide, those costs could amount to as much as $155 billion.

"When dividends on stock are not taxed, tax-exempt municipal bonds are not as attractive to investors. As a result, investors will demand higher interest rates on those bonds, making it harder for state and local government to fund schools, highways, and other critical infrastructure improvements. In fact, the Treasurer has estimated that the cost of the President's dividend tax cut to California amounts to the cost of 985 new elementary schools which could otherwise have been built over the next ten years."

"Simply put, the elimination of taxes on corporate dividends would wreak havoc on a California State budget that is already expected to run a $34 billion deficit in 2003 alone. I cannot in good conscience support a tax cut which not only drives the federal government deeper into debt, but which also makes it much harder for State governments to build for the future."

Senator Feinstein announced her opposition to the Bush Tax cut plan on January 9, 2003. Senator Feinstein said, "This is the wrong plan at the wrong time. It digs the nation deeper into debt. It is not a stimulus. It is skewed to the wealthy. And it severely limits the government's ability to pay for needed programs, like education, transportation, and law enforcement."

Additionally, she introduced legislation with Senator Lincoln Chafee (R-RI) to freeze the top income rate at its current level until there is a return to budget surpluses. Under current law, the top income tax rate is scheduled to drop from 38.6 percent to 37.6 percent in 2004 and then to 35 percent in 2006, before the entire 2001 tax cut expires in 2011.

The Treasurer's report can be found at http://www.treasurer.ca.gov/publications/NoDividends.pdf

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