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Tax Cut: No More Waiting Gamesby
Peter J. Sepp May 14, 2003 As long as the typical American family is forced to pay more for taxes than
for food, clothing, and shelter combined, reducing the burdens of big government
should always be a priority. But amidst our uncertain economy, sluggish stock
market, and stagnant job creation, a significant tax cut is an absolute imperative.
President Bush’s original $726 billion plan (which accelerated the
slow-moving tax cuts of 2001 and ended the double-taxation of dividends) was
already less sweeping than the tax cuts that Ronald Reagan and John F. Kennedy
proposed when they faced their own economic challenges. Congress, in an effort
to accommodate Members concerned over deficits, has agreed to a $350 billion
package that leaves taxpayers with less than half a loaf, but much more than
a few crumbs.
Some of the plan’s provisions – like a 15% maximum tax on investment
gains, immediate relief for families, and quicker rate reductions – can be complex and temporary, and are weighed down by a bailout for big-spending
states. Still, Congress’s compromise is worth supporting, especially
after examining the motives of those who tend to oppose any tax cut.
After all, Senators and Representatives who are truly worried about red ink
should restrain spending instead: “discretionary” outlays alone
have risen by 19% in three years. Lawmakers larded Fiscal Year 2003 spending
bills with more than $20 billion in politically-motivated pork. Kicking this
habit, along with de-funding low-priority programs, could make a serious dent
in the deficit.
Ironically, “deficit hawk” Senators (who first voted to scale
back the tax cut in March) sponsored legislation in the previous Congress
that would increase federal spending an average of $89.9 billion per year.
Their wish list actually dwarfs the “static” cost of Bush’s
original cut, even though the net economic
benefits of tax relief are likely to be greater.
How much greater? Ronald Reagan’s income tax rate reductions in 1981
helped lead to one of the 20th century’s strongest economic
expansions, in which 20 million new jobs were created over a decade. Tax cuts
enacted after John F. Kennedy’s death not only helped to bolster Gross
National Product, but also employment trends.
Indeed, lawmakers seeking a healthier federal budget should be supporting aggressive tax cuts. Receipts grew at a faster rate in the years that included implementation of Kennedy’s tax cut.
More recently, the brief return of budget surpluses (1998-2001) was preceded
by 1997’s reduction in capital gains tax rates. The bottom line: a strong
private sector, freed from burdensome tax rates,
can provide the public sector with a steady stream of tax revenues.
For example, the U.S. has the second-highest top dividend tax rate – right behind Japan – among the 30 industrialized nations in the Organization
for Economic Cooperation and Development. Without tax relief to make business
investment more attractive, America’s competitiveness in the world could
slip.
In addition, Congress’s Joint Economic Committee found that nearly
80% of the benefit from speeding up the gradual reduction in the top 38.6%
tax rate would go to small business owners. A tax cut now rather than later
for these entrepreneurs, who are the key to job growth, could add vital fuel
to an economic recovery.
Meanwhile, the latest IRS statistics show that 34 million tax returns (representing
71 million Americans) claimed dividend income in the year 2000. Of that number,
nearly 2/3 reported wage and salary earnings of $50,000 or less. Contrary
to “soak the rich” rhetoric, America’s middle class is also
a stockholder class that’s counting on better returns for retirement
and college funds.
Both history and common-sense economics have called upon elected officials
to cut taxes now. Playing the waiting game is not an option.
Sepp is Vice President for Communications with the National Taxpayers
Union, a 335,000-member citizen group founded in 1969 to work for lower taxes,
less wasteful spending, and accountable government on all levels. |
