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Tax cuts offer relief, big boost for economy
In the first hours of activity by a Congress and White House controlled by Republicans -- for the first time since Dwight Eisenhower's presidency half a century ago -- there is ample evidence that major steps are being taken in short order to support economic recovery and give Americans much-deserved tax relief.
In its first action, Congress swiftly approved legislation to extend unemployment benefits to 750,000 out-of-work Americans whose 26 weeks of benefits expired at the end of 2002. Another 1. 5 million in the ranks of the unemployed are expected to be affected by the time the extension expires June 1. Depending on the jobless rate and the economic climate then, another 13-week extension could be made, removing the sting of Democratic criticism that the extension should have been for 26 weeks to begin with.
The jobless benefits, which will put an average of $250 a week into the pockets of job seekers, is a jump start for stimulating the economy. That boost is amplified by President Bush's proposals to let Americans keep more of their earnings. This would be accomplished by accelerating tax reductions already included in the 2001 tax cuts that were to take effect over 10 years.
The key parts of the $674 billion tax reductions over 10 years are lower income-tax rates retroactive to Jan. 1, the elimination of federal taxes on stock dividends and an immediate increase in child tax credits. In addition, 46 million married couples would benefit this year from Bush's plan to grant relief from the marriage penalty that taxes couples with jobs who file joint tax returns more than single taxpayers. And small business owners would see a jump in exemptions for investment in technology, machinery and other equipment.
Overall, the Bush plan -- on average -- offers families about $1,000 of relief and small businesses about $2,000 of relief -- this year. The cuts would continue over future years.
While averages provide some measure of the impact of tax cuts, it's clear that U.S. taxpayers who pay the bulk of the total federal tax bill will benefit the most. Americans in higher income brackets or businesses that invest more in equipment will see the largest offset in their tax bills.
Democrats have expressed their standard "benefits the rich" theme as loudly as they can, but their familiar tirade doesn't seem to be making a big impact. Their own plan would give the same average tax relief to all wage earners -- well under $600 for 2003 -- regardless of income levels. And much of that would be in the form of one-time rebates similar to those mailed out during Bush's first year in office -- a tactic roundly criticized by Democrats at the time.
Wealthy Americans, who are responsible for most of the investments in businesses and the stock market that produce economic growth, don't leave found money to gather dust. They put the money to work, which has the effect of boosting not just the economy by the availability of jobs. Most of the tax relief provided by the Bush plan would find its way back into the economy in short order.
As we've heard before, Democrats appear to believe that spreading fear about tax cuts is a productive way to help the economy. Among those fears, they claim, is the specter of enormous budget deficits that would result from reduced revenue.
There are two easy counterclaims to that misinformation.
First, by saying that tax cuts automatically will produce less federal revenue to pay for unchecked appropriations, Democrats are ignoring the commonsense mandate to reduce spending whenever less revenue than expected comes in. But Democrats are loathe to cut spending, which is why they favor high taxes even in tough economic times.
Second -- and this is an important corollary to the first point, tax cuts don't produce less revenue for the federal government. Historically, meaningful tax cuts have always produced economic growth and its accompanying increases -- yes, increases -- in tax revenue in spite of the cuts.
Congress and the president have acted with speed and good sense on jobless benefits. Now they should act deliberately to pass the Bush plan so Americans can take advantage of lower taxes and have more of their income under their control.