Posted on 01/25/2003 9:08:59 AM PST by PhiKapMom
Oklahoman Editorial: Gimmicks Aren't Focus of Stimulus Plan
2003-01-25
CONGRESSIONAL Democrats who oppose President Bush's economic stimulus proposal are taking aim at the plan's feature elements: ending double taxation of corporate dividends and speeding up marginal tax rate reductions passed by Congress in 2001. The rhetoric is fairly typical of the anti-tax cut crowd, that tax cuts favor the rich. They also say the president's proposal doesn't provide immediate economic stimulus like their plan to give one-time, refundable rebates of $300 to every American.
On both counts, they miss the point.
First, the economy isn't nearly as bad off as some make it out to be. Commerce Secretary Don Evans notes that current distress is mostly localized in the stock market, that productivity is up and inflation is under control.
As for stimulus, the term is a misnomer if you're talking about government's role in a multitrillion-dollar economy.
The object is sustainable economic growth, the enabling of the U.S. economy so it can create jobs. Tax-and-spend policies in Washington are tempting in the short term to goose lagging economic indicators, but they consume available capital without producing anything approaching the economic benefits produced by the private sector.
An analysis of the Bush proposal and the Democrats' alternative by the Washington-based Institute for Research on the Economics of Taxation (IRET) says the president's plan would "push the economy's growth buttons."
Bush's plan would end the double taxation of corporate dividends by eliminating the tax at the shareholder level. Venerable economist Milton Friedman says this would end corporations' "present bias toward retaining earnings rather than distributing them as dividends." The result, he says, will be a "more effective distribution of capital ..."
Marginal rate reductions that were due to go into effect next year and in 2006 would become effective immediately, retroactive to Jan. 1 of this year. Top tax brackets would fall to 25, 28, 33 and 35 percent, respectively. Permanent cuts to marginal rates have obvious benefits for owners of small businesses planning for the future.
Critics say these major tax cuts wouldn't put money in people's pockets quickly enough to help the economy, but, again, they miss the point.
Tax cuts help the economy in a broader sense if they make it more rewarding, after taxes, for Americans to work an extra hour, save an extra dollar or add an additional machine or building to their stock of capital, writes IRET's Stephen J. Entin.
"Many critics of the policy focus on who gets the money and what their income levels are," Entin writes. "That has nothing to do with the economic benefits of the tax relief, nor is the 'distribution' of the relief 'unfair,' since this is double taxation to begin with."
The Democrats' rebate proposal is temporary and minuscule compared to the size of the economy. The handouts would mostly be saved, Entin says, and there is "nothing in the rebates that reward people for additional work, saving or investment."
So a big battle looms in Congress. Americans should not let class warfare rhetoric sap their support for Bush's policies, which are aimed at job creation and sustained economic growth, not temporary gimmicks.
I like this common sense explanation. Too bad we don't have a Daily Oklahoman Network!
The Daily Oklahoman is living back in the '70s.
Inflation isn't the concern. DEFLATION is.
The object is sustainable economic growth, the enabling of the U.S. economy so it can create jobs.
In the "new" economy, the "trickle down effect" that Dubya is relying on for his tax-cut stimulus is short circuited by his trade policies. The Trade Deficit will misdirect the stimulus to offshore nations such as Mexico, India and China. Americans will merely be buried in additional National Debt.
He actually wants to make things better, as opposed to the Democrats who use gimmicks all the time.
The whole state is just now emerging from the ‘50s.
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