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An Elegant Option (The House Tax Cut Plan)
INVESTOR'S BUSINESS DAILY ^ | Tuesday, May 13, 2003 | Editor

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.


TOPICS: Business/Economy; Editorial; Government; News/Current Events
KEYWORDS: bushplan; bushtaxcuts; capgains; house; senate; stockdividends; taxcut; taxreform
Let us have tax relief (our money back) already.
1 posted on 05/13/2003 7:03:24 AM PDT by Isara
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To: Isara
Let us have tax REFORM already. Get rid of the IRS and the income tax altogether.


2 posted on 05/13/2003 7:05:33 AM PDT by unixfox (Close the borders, problems solved!)
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To: unixfox
Let us have tax REFORM already. Get rid of the IRS and the income tax altogether.

Probably, we have to wait after 2004 election to get more conservatives in especially the senate.

3 posted on 05/13/2003 7:11:23 AM PDT by Isara
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To: Isara
Sunset provisions to allow some of these "elegant" tax cut solutions to expire in 2005 -- just long enough to get past an election before sticking it to the public.... AGAIN.
4 posted on 05/13/2003 7:13:32 AM PDT by alancarp (123,000 signers are hard to ignore: http://www.ipetitions.com/campaigns/hollywoodceleb/)
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To: Isara
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....

5 posted on 05/13/2003 7:21:48 AM PDT by Mr. Bird
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To: Mr. Bird
Not when you have obstructionist money hungry politicians like John McCain and other Repugs and demonrats standing in the way. I'll spend your money even in hard economic times but when it comes to cutting back I find more ways to spend your money. We are doomed.
6 posted on 05/13/2003 7:32:16 AM PDT by AbsoluteJustice (Kiss me I'm an INFIDEL!!!!)
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To: Isara
Sadly, it is almost certain that the Rats are going to pick up a Senate seat in Illinois in 2004 since Peter Fitzgerald has decided not to run again, and the Republican party in Illinois has been trashed by corrupt RINOs.
7 posted on 05/13/2003 7:45:19 AM PDT by dark_lord (The Statue of Liberty now holds a baseball bat and she's yelling 'You want a piece of me?')
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To: dark_lord
It doesn't matter though because there is no difference anymore between the party's. They all are for raising taxes because the more money they have in their coffers to support their socialist programs the more power they get to keep over the people. We have a Senate majority leader with no SPINE which is quite evident. It doesn't even look like the republicans are in control of either house as a result of the last election because nothing has changed. Face it our republican leaders aside from the president are WEAK!! We must face this reality and look for another steamrolling come next election because our leaders will not speak out. A 550 BIL tax stimulus?? LMFAO a drop in the bucket not even enough to wipe my nose at. It is an utter joke and you can thank congress for this fiasco and our WEAK republican leaders. I don't blame the Demonrats on this one I balme the WEAK republican leadership. They have tha majority.
8 posted on 05/13/2003 8:02:32 AM PDT by AbsoluteJustice (Kiss me I'm an INFIDEL!!!!)
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To: Isara
Bush's proposals are inching the system towards a consumption tax system. This is most clear when you look at already-implemented IRS regs regarding health plans and 'savings' legislation/regulations.

It's not quick, and it's quite subtle--but it's there.
9 posted on 05/13/2003 10:47:24 AM PDT by ninenot (Joe McCarthy was RIGHT, but Drank Too Much)
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To: Isara
The only problem with this article is its underlying assumption that Fed spending should be maintained. That limits the fight to only ONE of the TWO necessary rounds.
10 posted on 05/13/2003 10:48:28 AM PDT by ninenot (Joe McCarthy was RIGHT, but Drank Too Much)
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