Posted on 05/13/2003 7:03:23 AM PDT by Isara
Fiscal Policy: The more we hear about the House and Senate alternatives to the Bush tax cut plan, the more we're convinced the House's approach is superior.
In fact, there really isn't much of a choice. The Senate's $350 billion product is what you'd expect from a deeply divided body trying to propitiate all interests while satisfying none. It's a mishmash and (in hiking some taxes to cut others, for example) a self-defeating mishmash at that.
The $550 billion House plan, on the other hand, is a well-thought-out piece of legislation that improves on what the president came up with, whether his advisers know it or not.
Crafted by House Ways and Means Committee Chairman Bill Thomas, it has reportedly been described by Larry Lindsey, former member of the economic team that devised the Bush plan, as "elegant." We can't think of a better word.
The Thomas plan preserves what too many have forgotten is the real "centerpiece" of Bush's $725 billion initiative acceleration of the tax-rate cuts that were passed in 2001 but which won't take full effect until 2006. These reductions, retroactive to Jan. 1, will put money in the pockets of all taxpayers immediately.
The bill also keeps other features that Bush wisely proposed, including an increase in the family tax credit, a reduction in the marriage penalty and an expansion of business write-offs. But to help cut the plan's "cost," all three of these provisions would "sunset," or expire, in 2005.
The bigger change to Bush's plan comes in the treatment of stock dividends. Bush wants to end the double taxation of this income at an estimated "cost" of $400 billion. The House's ingenious solution: treat dividends (now taxed as ordinary income at a top rate of 38.6%) the same as capital gains (now taxed at 20%) and set a new rate of 15% for both.
The "sunset" provisions have come under some criticism. But to us, they too make sense. The need for stimulus is now. If the need is still there in 2005, then extend the provisions. Sunsetting is a small price to pay for a cap-gains cut that will do more for the economy and the stock market than even elimination of the dividend tax.
Reductions of 25% in the cap-gains rate and 61% in the dividend tax are significant the kind of bold steps needed to revitalize an economy that needs far more stimulus than the White House or Congress has been willing to admit.
Our leaders seem to recognize the economy remains "soggy," as Treasury Secretary John Snow puts it, as it recovers from a recession, 9-11, war on terrorism in Afghanistan and the liberation of Iraq. Now, as former GE Chairman Jack Welch points out, along comes SARS, which has thrown sand in the gears of what had been the world's only full-growth economy China.
Still not fully grasped, however, is the impact of the stock-market decline of 2000-03. Damage to investors from that debacle has been just as devastating as the crash of 1929. It took years and nothing short of a world war to pull us out of that downturn.
Which makes the bickering about the current tax plans look all the more "crazy," as Welch puts it. In a $10 trillion economy, tax relief of $550 billion especially in the elegant form the House suggests isn't more than we can handle. It's the least that can be done.
Probably, we have to wait after 2004 election to get more conservatives in especially the senate.
The '04 election is likely the last, best chance at revolutionary changes to federal policies on taxes, social security, medicare/medicaid, and individual retirement issues. If the GOP makes gains in the Senate and stands pat in the House, we'll have all the ingredients for New Deal repeals. I salivate thinking about what Bush might do, not having to worry about reelection....
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