Kerry's Tax Plan is Economic Downer

NRO ^ | Aug 4 2004 | Larry Kudlow

[Rodm]

Consumer spending never once declined in the recession of 2000-01. This is because middle-class income actually increased by nearly 5 percent between 2000 and 2002, according to the latest IRS statistics. This fact runs completely counter to the Kerry-Edwards argument about a “middle-class squeeze.”

Still, overall individual income declined 5 percent during this period. Why? Upper-end income suffered mightily. The top tax brackets lost about 28 percent of their income, on average, largely from the stock market crash and the fall in high-paying jobs. Twelve percent of the folks who fought their way above $200,000 a year slipped below that level in 2002.

At the rarified income level of $10 million or more, those with the highest propensity to save and invest lost a stunning 63 percent of their income during 2000-02. Total capital-gains income fell by 29 percent, and dividend income dropped 17 percent. When Bill Clinton recently told the Democrats in Boston that top tax-rate payers don’t need the extra money, he was sorely uninformed.

It was the investment-side of the economy that collapsed in 2000-02. But without investment funding, economic growth was null and void. For example, capital-goods investment (equipment and software) fell in eight of ten quarters between mid-2000 and the end of 2002, with six of those declines coming consecutively. Industrial production declined for six straight quarters. When measured against year-ago levels, after-tax corporate profits declined in seven straight quarters.

Surely, a 78 percent drop in the Nasdaq and a near 40 percent fall in the broader stock indexes deserve the lion’s share of blame for this business-investment recession. In the new economy, the stock market is essential to the investment-funding of business and the income- and wealth-creating activities of the 50 percent of the adult population called the investor class. When the market cost of capital rises sharply, as it did in 2000-02, investment activity hemorrhages.

This is why President Bush’s 2003 across-the-board tax plan — aimed especially at risk-taking investors (capital gains and dividends) — was brilliantly crafted. Since its passage, the stock market and the economy have emerged from a long slumber. Should the Kerry Democrats succeed in repealing Bush’s investment tax incentives, the economy will rapidly retreat.

[Rodm]

Kerry has a Plan . . . A Bad Plan

[EVO X]

This is because middle-class income actually increased by nearly 5 percent between 2000 and 2002, according to the latest IRS statistics. This fact runs completely counter to the Kerry-Edwards argument about a “middle-class squeeze.”

2000 and 2001 were Ok for me. I got no pay raise in 2002 or 2003, so the meager tax cuts helped my income keep up with inflation.