Posted on 06/01/2003 1:45:37 AM PDT by TomAdkinsCC
WHY TAX CUTS WON'T WORK---Not so fast, folks!
by Tom Adkins .......CommonConservative.com 6/1/03
Debates are raging over the 330 billion dollar tax cut passed last week. Democrats squealing about the "cost" of the tax cuts. Republicans crow about the doubtless "boom" that will result. It's time someone threw a bucket of water on the rhetoric. They're both wrong. Here's why…
First, let's take on the Democrats claim that tax cuts "cost" revenue, with a little history. In 40 years, no tax cut (Kennedy, Reagan, Clinton 95, Bush II) has resulted in less treasury income. Never. With the exception of the miniscule 2001 cut (flat revenue so far), every cut dramatically boosted treasury revenue. And they all boosted economic growth, including Bush II, which arguably saved the economy from the Greenspan/9-11 mini-recession. (Five straight quarters of positive growth, a respectable 3% average). And every tax increase (Carter, Bush I, Clinton 93) slowed the economy and revenue growth. Remember, Clinton's retroactive tax hike barely gave us 1% growth for two years. Apparently, conservatives are right about the famous Laffer curve, which shows you can get the same tax receipts with two different tax rates, proving growth beats the cost of tax cuts.
But what about the conservative prediction that the latest tax cuts will boost the economy and send revenues soaring? Sorry, supply-siders, not this time. It's important to understand a few facts here. First, a $330 billion tax cut sounds massive. But that's measured over ten years, only $33 billion per year. Compared to a 2 trillion dollar budget? That's less that a 1.6% cut, a mere deck chair off the Queen Mary. Exactly how will that turn the ship around? And we're still fighting a war. But it gets worse.
The GOP front loaded the cuts, with sunset provisions. In other words, they end in 2-3 years and revert back to the current higher rates. Then, Republicans will dare Democrats to raise those taxes back up in the 2004 elections, gambling on a position play. If the economy is booming, they'll claim the tax cuts get credit, and we should do it again. If the economy is slow, they'll claim the larger cut was needed, and dare Democrats to demand higher taxes in an election year. Great politics. Bad economics.
The reason the last three tax cuts worked is because they were permanent. People knew they could buy a car, house, or invest money with a future tax rate that was predictable. And long-term tax predictability meant businesses could invest their new profits, expand, know the future net from their write-offs and profits and (drumroll, please) hire people. That's why the Kennedy, Reagan and Clinton 95 tax cuts worked so incredibly well, and the Bush I and Clinton 93 tax hikes crushed the economy.
On the other hand, consumers can't gamble on a large future purchase if tax cuts are temporary. If a family is debating a car purchase, they'll hesitate if the marriage penalty is lowered for only two years. How will they make a payment in year 3, 4 and 5? And businesses? They can't plan anything with only two years of certainty, especially with large-dollar equipment investments. In short, this small, temporary tax cut will lead to small, temporary results.
It seems as though Republicans folded without fighting all that much. They certainly didn't make the case as if their political lives depended on it, gambling that a smaller temporary tax cut will be successful in an election year without knowing what the interim brings. And Democrats are cheering their "victory" over the President while tacitly acknowledging tax cuts work, ignoring the obvious logic that a larger cut would work better. And Neocons will need additional revenue -and public support- to complete their vision of pre-emptively attacking our global enemies for national security. In a lame-duck second term, Presidents have far more latitude to conduct adventurous foreign policy. But not without money.
The irony is that higher growth and higher revenue is good for each party. Republicans would ratify their fiscal philosophy of lower taxes and staying atop the global food chain. Democrats would get more money to experiment with, possibly learning how to add some common sense to their compassion. But without permanent tax cuts, neither will reach their goals.
And we haven't even addressed wasteful spending. But if an American Congress can't grasp a minor tax cut, you can bet they'll endlessly debate how much the taxpayers fork up to keep their political oxen in the barn, away from the gore. ==========================================
Tom Adkins is the Publisher of CommonConservative.com, and a frequent guest on Fox, CNN, CN8
Taxes, by their very nature, are fliud not static. Any change in the politcal structure of Congress will affect the permanancy of any tax legislation.
However, a political advantage is gained by forcing the marxists to not only raise taxes but repeal existing tax cuts as well.
And finally, any tax cut is a good tax cut.
I gave myself a tax cut this year and refused to pay for my car tags. =) I started counting all the ways the state gets me to pay for their highways, and I just didn't think it was fair. So by a narrow vote of 1-0, it passed in my Senate and House. Look at how much we spend on GASOLINE tax, for goodness sakes. We should have gold-plated highways.
You cut taxes, so people have more to spend. The money is spent on goods from china (or where ever) the companies who's products you purchased with said tax cut dollars now pay to expand/modernize operations & hire people.. In china, but not here.
Sure, people still have jobs transporting, stocking and selling the stuff.. but many of those are relatively low paying positions.
When the smoke clears, I wonder how things will fare for future economic stimulus/tax cut packages.
?
I agree with nearly all of that. However, I'm not sure about the relationship between the tax cuts on dividends and the recent rise in stock prices. Has anyone attempted to correlate the rise in individual stock prices with dividend ratios?
The latest reports from the midwest show unexpected increases in same.
The reason the last three tax cuts worked is because they were permanent. People knew they could buy a car, house, or invest money with a future tax rate that was predictable.
Milton Freidman won a noble prize in economics as a supply sider for writing basically what is stated above. This isn't drivel, Bush believes in supply side, and a big thanks on tax cuts being a policy goes to Reagan who used Friedman as the basis for this policy, but he does have a legitimate point, in a way, we have to hope that one of the best economists and a huge advocate for supply side is wrong on this one occasion.
The belief amongst most, is that there will be serious reform in the second term, and this may be used as a campaign issue.
Also, some time in the next couple of years, the AMT will start affecting over 35 million american families, reform of the AMT will be a part of the overall strategy in Bush's promise to reform and simplify the tax code and bring about Tax reform.
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