 Commentaries
 Printable Version |
 Email to a friend
A Clear Choice on Taxesby
John Berthoud Jan 9, 2003 While
America’s two major parties have established much common ground on a
number of issues in recent years, the competing tax plans offered this week
by House Democrats and President Bush give the nation a very clear choice
on tax policy.
The President
has presented a tax plan that is welcome news for ailing financial markets
and will help jumpstart the economy. But it will also foster growth
over the long-term and make the Tax Code fairer.
The cornerstone
of the President’s 10-year, $674 billion plan is elimination of the
taxes that shareholders pay on dividends. What Bush is actually doing
is eliminating a tax on money that has already been taxed previously (through
government’s levies on corporate income). If it sounds nonsensical
and unfair to tax this money twice, you’re right – which helps
explain why most other developed nations don’t do it.
Up to 35 million American households receive dividend income and will thus
benefit directly. But the indirect economic benefits – through
helping boost the stock market – could be even more significant.
Bolstering stock portfolios will add to Americans’ net worth and help
restore consumer confidence, in turn increasing purchasing. And a positive
jolt to the stock market will lead to business expansion and thus job creation.
The President’s
plan also speeds up the previously enacted reductions in marginal income tax
rates. Government cannot create wealth or expand the economy – only the private sector can do that. Government can, however, hinder
economic growth through bad policy, and there are few policies that do more
economic damage than high marginal income tax rates. Lowering marginal
rates removes barriers to work and investment and means higher economic growth.
The House
Democrats’ plan by contrast is mostly just handout economics.
The centerpiece is a $300 one-time rebate to every taxpayer. At most,
this will stimulate a small amount of demand over the short-term.
The Democrats’ plan also rewards states for their extravagant spending
of recent years by offering $31 billion in charity. The message here
is that while tough economic times have required small businesses to prune
back expenditures and employee benefits, the Democrats don’t think the
same principle should hold true for states, many of whom lavished public employees
with higher salaries and generous new benefits during the fat years of the
late 1990s.
The House Democratic plan also has some small business incentives and they
propose to extend unemployment benefits, as does the President. The
Democrats’ scheme does nothing to remove economic disincentives – like high marginal tax rates and the double-taxation of dividends – from the federal Tax Code, so offers nothing for the longer term.
The class
warfare crowd has already begun savaging the President’s plan.
Ignoring the fact that more successful Americans already pay not only more
dollars in taxes, but also a far higher percent of their income in taxes,
they claim that the President’s plan is unfair because those sending
more to Washington in the first place get more dollars back. It’s
the same old tired rhetoric that didn’t resonate particularly well at
the polls in November 2002.
In fact,
an honest assessment of “fairness” would show the President’s
plan as the clear winner. Mr. Bush doesn’t unfairly reward state
governments for their profligacy of recent years. Unlike the Democrats,
he ends a tax on money that’s already been taxed. And his plan
is based on the idea of returning tax dollars in some relation to how much
a person paid to begin with.
Many conservatives in Congress instinctively shy away from the
Left’s “fairness” attacks. Who wants to be in
the crosshairs of the editorial page of the New York Times?
Hopefully, during the coming debate over these two competing plans,
conservatives will shed their past reluctance to take on this fight
and instead start telling the American public whose plan is really
fair.
John Berthoud is President of the 335,000-member National
Taxpayers Union, a non-partisan citizen organization founded
in 1969 to work for lower taxes, less wasteful spending, more economic
freedom, and taxpayer rights at all levels.
|
