Tax Cut Analysis (Wonderful Insight into Tax Cuts)

PoliPundit.com ^ | 5/24/03 | PoliPundit.com

[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.

[NYC Republican]

Truly excellent insight into the tax cut and its ramifications, both political and economic. Great piece, worthwhile reading.

[Mears]

Nice post!

I would never vote for anyone who was against a tax cut,we are overtaxed now and have been for many years.

[Trust but Verify]

Democrats are sooo screwed.

[Torie]

Here is a quiz question for you. Which black Dem congressman voted for the tax cut bill? Which Pubbie voted against? Which white Dem with a somewhat liberal reputation voted for the tax cut bill?

[CyberAnt]

"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"

WhoooHoooo! I guess right! The President BUSH-WHACKED the dems again!! He got his $726 Billion Tax cut anyway - because the sunset provisions will be un-sunsetted after the next election!!!

Once again - the dems have misunderestimated the strategery.

[Torie]

Actually, the number is higher. See below. It will either all work out, or it won't.

"If all those provisions are extended, the full cost of the plan will range from $800 billion to $1 trillion, even more than the $725 billion Bush initially requested, according to a study by the Center on Budget and Policy Priorities, a liberal think tank."

[Farnham]

I think the $400 rebate is actually the most politically savy part of the plan.

This is an electrifying piece of mail and a big wake up call for the blue collar guy with 3 kids who doesn't think a lot about what taxes really cost him.

And it comes in time for a little family get away or back-to-school. How convienient.

Let's see em take that away in 94.

[AmericaUnited]

Bush is stupid, no gravitas, a frat party boy, etc. etc.

And that is why it must hurt so bad, when the demonrats get their clocks cleaned over and over again by G.W.

[NYC Republican]

"Let's see em take that away in 94"

'04, right? They'll never be able to do it!

[CyberAnt]

Well ... it may hurt - but they aren't learning from it - which is making them look like idiots; angry, bitter, idiots.

[nonliberal]

Most of the people getting the "rebate" do not pay taxes in the first place, thanks to EITC. It is not a rebate it is simply a vote buying scam with YOUR MONEY!!

Remember, in 2005, taxes go right back up!

[NYC Republican]

"It is not a rebate it is simply a vote buying scam with YOUR MONEY!!"

I'm sure you complained loudly about this when the DemocRats put in the $300 refund last year (into the bill)?
They thought it would help stimulate the economy then. Yeah right, I'm sure you didn't say a word then. Sounds like you are in fact a liberal??

[Bernard]

So a $350 billion tax-cut is what % of the total receipts? Is this a 1%, 10%, 50% cut? I hate celebrating in a vaccuum.

[upchuck]

Wow, this is BUMPALICIOUS!!

Every FReeper should read this. An excellent analysis!

[Torie]

Well, receipts are close to two trillion, so if the cuts cost 900 billion over 10 years (90 billion per year), that is about 4.5%. The 350 billion figure is worthless, because it is sunseted over various years, in various parts, earlier than 10 years. That is what the Dems are complaining about.

[Right_in_Virginia]

BTTT for a MUST read!

[Jim Robinson]

Excellent! Bump!

[VA40]

You're wrong on this. Pull a 1040 and look at it. The EIC is a payment, the child tax credit is a credit off any taxes owed.

[NYC Republican]

Polipundit.com is the most fantastic blog I've ever seen. This, and realclearpolitics.com (and powerline.com) are definitely worth reading...

Check out Polipundit.com's 2004 Senate predictions, which are updated periodically. Awesome.

Thanks for the bump. I agree, I would love it if every Freeper was able to read this commentary.