Tax cuts will give immediate relief
There are many ways to analyze a tax cut. And, unless great care is taken, all the benefits of lower taxes can quickly evaporate into the haze of political partisanship.
For example, there will be many Americans who agree with the Democratic position that every dollar not paid in taxes is a dollar that won't be spent on crucial federal programs.
There are two responses to that point of view.
The first response is that federal spending is growing so rapidly that a built-in lid on new expenditures wouldn't be all bad. But tax cuts can't be measured in dollar-for-dollar trade-offs, as explained in the second response.
The second response is that cuts in the direct taxation of what Americans earn produce economic benefits -- more consumer spending, more factory output, more jobs -- that, in turn, generate more federal revenue. When the economy grows, so do the number of taxpayers, and more taxpayers mean more money going to Washington, even with the tax cuts.
For now, let's look at the benefits of the tax cuts.
First is the immediate impact. The IRS already has issued new withholding table that will lower the amount of money withheld from every worker's paycheck. Employers are required to start using the new tables no later than July 1, but there is nothing to keep payroll departments from using the new tax tables for the very next payroll. So millions of Americans are likely to see more of their wages in their paycheck in June.
Second is the refunds that will be mailed to 25 million parents who claimed child tax credits on their 2002 returns. Those credits increase under the new plan, and the checks are early payments -- up to $400 per child -- of the tax savings they would be expected to see on the 2003 returns. By sending the checks in July, parents won't have to wait until they file their 2003 returns to see the benefit. They will be able to use the money right away -- just as back-to-school sales are getting into full swing.
Third is the direct aid to state governments that is included in this tax package. Missouri is expected to get nearly $400 million, which will be welcome relief as the legislature goes into special session Monday to deal with the governor's vetoes of a major portion of the budget approved during the recently ended regular session. (More about the impact of this infusion of federal dollars in Sunday's editorial.)
Even though the $350 billion tax-cut package -- spread over 10 years -- is less than half what President Bush initially sought, it's still the third-largest tax cuts in U.S. history. Whether or not the cuts stimulate the economy and create new jobs remains to be seen. Many factors in addition to federal taxes will determine the course of our economic future.
But tax cuts are clearly a proven way of giving a vital boost to the economy, whose turnaround probably won't be seen as quickly as those child tax credit refund checks in July. Keep in mind that without any tax cuts, the economy would likely be in a deep downward spiral.