Posted on 05/24/2003 4:31:10 PM PDT by NYC Republican
Tax Cut Analysis
The US Senate has approved a conference report with the House on a $350 billion economic recovery package. Unless the president is struck by lightning, he will sign the legislation immediately. If the president is struck by lightning, Dick Cheney will sign the legislation immediately.
Even the liberal LA Times concedes that most people would benefit from this bill.
I've refrained from commenting on this process so far; but here are some of the things that stand out. First, the good things:
1. Democrats did not come along. As you can see from the roll call, the vote was 50-50, with the vice president breaking the tie. Three Republicans voted against the package, while two Democrats voted for it. As I've noted, Democrats, blinded by their hatred of the president, have lost all sense of political perspective. This vote will come back to haunt the nine Democratic senators who will be running for re-election in Bush states in 2004. Imagine the attack ads: "Blanche Lincoln voted against increasing the child tax credit. She voted against eliminating the Marriage Penalty. Blanche Lincoln wants higher taxes on your family. Vote for Mike Huckabee in 2004."
2. The package's official "cost" over ten years is $350 billion, allowing Republican Senator George Voinovich to vote for it. However, the cost was achieved by "sunsetting" popular provisions quickly, while leaving the less popular ones in place for several years. Thus the dividend tax cut will sunset in 2008, while the child tax credit increase will sunset in 2004. This will leave congress in the position of letting popular tax cuts lapse in an election year, or renewing them. Congress is unlikely to commit political suicide; so the provisions that sunset next year will likely be renewed, putting the real "cost" of the tax cut above the $726 billion that the president wanted. Remember last December, when the president was supposed to want a $300 billion tax cut and the conventional wisdom was that he'd get about half that?
3. The "sunsetting" of popular tax cut provisions in 2004 is designed to provide Republicans a political cudgel against Democrats in 2004. All the Democratic presidential candidates (except mealy-mouthed John Kerry; as usual, no can figure out what he thinks) have come out for a repeal of the 2001 tax cuts and opposed the 2003 tax cuts. They're going to find these positions highly unpopular in 2004, when popular tax cuts are sunsetting and the Democratic presidential nominee will have to say he wants to let them expire and raise taxes on the American people. Will Americans vote for a candidate who says he'll raise their taxes? Just ask Walter Mondale.
4. Income tax rates will be lowered immediately. Working people will reap the rewards in the form of fatter paychecks starting in July. Families with children will receive checks to cover the increase in the child tax credit.
5. The tax on dividends wasn't completely eliminated; but the president got over a 60% reduction in the dividend tax and a 25% reduction in capital gains taxes. This is far more than anyone expected a few months ago and the cut in capital gains wasn't even on anyone's radar a month ago.
6. The real "cost" of the tax cut is, of course, nowhere near $350 billion. This tax package will help the economy recover, resulting in a net increase in revenues, like the Reagan tax cuts achieved in the eighties.
Now, for the few bad things about this package: 1. There's $20 billion in aid to the states. This was necessary to get Democratic Senator Ben Nelson's vote; but the thought of rewarding the profligacy of state governments by bailing them out is repulsive.
2. The idea of "sunsets" is valuable as a political tool to keep the official "cost" of the package low. The "sunsets" are also carefully designed to provide political ammo against Democrats in election years. However, good tax policy should keep tax rates predictable, which "sunsets" don't do.
So there you have it. Another virtuoso performance by the president in pushing for this package. Another reason for Democratic party leaders to go into convulsions of rage every time someone mentions the president's name.
Who is the REAL George Bush? The dumb-ass frat boy who's too stupid to perform the office of President, or the evil, sinister, conniving megalomaniac who's out to take over the world (not to mention give tax breaks to his wealthy oil buddies)?
Then I stand back and watch the fun.
When they run out of gas, I tell them how I cut my federal taxes over $5k last year, thanks to the "SUV tax credit". Drives 'em crazy.
A different view.
What it means that the Administration now has a very good chance to test its policies. If they succeed, and the economy recovers, a long period of conservative domination will result. If they fail, and the economy tanks, conservative economic policies will be discredited.
That's as it should be. Conservatives won the election and should have a fair chance at governing the way they wish.
But politics being what it is and people being what they are you can be sure everyone will try to claim credit for any success and lay off blame for any failure.
NYC Republican: "Truly excellent insight into the tax cut and its ramifications, both political and economic. Great piece, worthwhile reading."
Tax cuts always work to stimulate the economy. Always. The question is in the timing.
Ideally, the benefits of the tax cut will be felt in a substantial way within a year, allowing President Bush and the Republican Congress to reap voter good will thereby increasing Republican domination in government.
There is a real risk that it will take longer than a year. Democrats are hoping and praying it will. Ideally (for them), the recovery will lag until they have taken back the White House and Congress so they can claim parasitic credit and impose tax hikes (and a hugely expensive national health care package) thus setting the economy on a downward trend--just in time for Republicans to take over and attempt to set things right again.
That is exactly the way Bubba and the Dems played the Reagan tax cuts and peace dividend.
In the analysis I posted, this is the sentence which most impressed me - and what makes economic analysis so difficult.
There's a big world out there. The Japanese are mired in a deflationary spiral. The Germans are threatened with the same thing. SARS is on the loose. World-wide, unrestricted immigration from the third to the first world is a huge problem. Terrorism is far from contained. And so on.
The big question for me is over-capacity. If it's real why would anyone invest in new capacity?
7. Dubya goes for even more tax cuts - next year!
#2. The package's official "cost" over ten years is $350 billion, allowing Republican Senator George Voinovich to vote for it. However, the cost was achieved by "sunsetting" popular provisions quickly, while leaving the less popular ones in place for several years. Thus the dividend tax cut will sunset in 2008, while the child tax credit increase will sunset in 2004. This will leave congress in the position of letting popular tax cuts lapse in an election year, or renewing them. Congress is unlikely to commit political suicide; so the provisions that sunset next year will likely be renewed, putting the real "cost" of the tax cut above the $726 billion that the president wanted. Remember last December, when the president was supposed to want a $300 billion tax cut and the conventional wisdom was that he'd get about half that?
3. The "sunsetting" of popular tax cut provisions in 2004 is designed to provide Republicans a political cudgel against Democrats in 2004. All the Democratic presidential candidates (except mealy-mouthed John Kerry; as usual, no can figure out what he thinks) have come out for a repeal of the 2001 tax cuts and opposed the 2003 tax cuts. They're going to find these positions highly unpopular in 2004, when popular tax cuts are sunsetting and the Democratic presidential nominee will have to say he wants to let them expire and raise taxes on the American people. Will Americans vote for a candidate who says he'll raise their taxes? Just ask Walter Mondale.
Well, no.
But they will vote for a candidate who promises to raise the amount of money they can steal from their neighbors in the form of benefits.
It does not matter if taxes are cut as long as the size, scope, and power of the government at Washington continues to increase.
Cutting taxes and promising free drugs is a fairytale.
I'm not sure if I understand, its my money, I get to keep more of it, the more I earn, the more I get to keep. How are they buying my vote with my money? Thats like the Mafia saying we won't take 10%, we take 7%, they didn't give me a dime, they just took less.
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