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Nancy Ahern

is the Executive Editor of the Tocquevillian magazine, and a freelance writer and columnist in Arizona.


    Cutting back tax cuts?
    How one hand is chopping off the other

    by Nancy Ahern

    May 15, 2003

    The arguments pull from the core of the ideological differences that used to mark the Democratic and the Republican parties. Once upon a time, Virginia, you could actually distinguish between them.

    Yes, we're talking tax cuts. More specifically, we're talking about President Bush's proposed $550 billion (on its way down thanks to those meddling Congress-critters) tax cut plan aimed at "[creating] jobs by removing obstacles to economic growth." Dem politicos call it "reckless", and even Federal Reserve Chairman Alan Greenspan has indicated that while he continues to believe that the the elimination of the double-taxation of stock dividends would have long-term advantages for the economy, in light of rising federal budget deficits, any further tax cuts need to be offset with, among other things, cuts in government spending to keep the deficit from becoming unmanageable.

    Cuts in government spending? Well, duh.

    Of course, that strikes deeply into the heart of all that the more socialistic of the Democratic party members hold dear. They simply cannot conceive of holding down spending, remaining within a strict budget, and letting the oiled machinery of a healthy economy do what it does best.

    Cutting Dem Down to Size

    Let us take some of the arguments offered against Bush's tax cut proposal one by one, however, shall we?

    U.S. House Rep. Stephanie Tubbs-Jones, an Ohio Democrat is quoted as saying in a radio address that "a tax cut of this size, directed to the privileged few, will not help our struggling economy"

    Ah, yes. "The privileged few." A brief jaunt through the House of Representatives Joint Economic Committee's (JEC) reports reveals that "new Internal Revenue Service (IRS) data show that the top one percent of tax filers paid 37.42 percent of federal personal income taxes in 2000, the latest year for which data are available."

    That would be those few who are privileged enough to pay the bulk of the tax burden, yes? The privileged few who also invest in businesses, or have built and run their own, who provide jobs -- or would, if they could afford to, except that thanks to the economy and the excess burden of the federal tax system fewer companies are willing to hold steady or accelerate their investing. Unlike other post-World War II recessions, consumer spending has been remarkably stable during this recession, but business investment took a nose-dive.

    Tubbs-Jones, in touting the Democrat's smaller tax-cut package, offered the opinion that businesses will invest in jobs in "if they're allowed to write off more of those investments on their taxes.

    Well, that would be lovely, except that businesses do not pay taxes. Taxes on businesses get passed down to the consumer in the form of price increases. If taxes become onerous and they are passed on to the consumer, the price of the product is raised so high that not many consumers will purchase it. Since the present recession seems to be caused by a lack of capital, spending the accelerated depreciation and investment tax credits will do a lot of good to turn this economy around. Additionally, this proposed tax cut would encourage businesses to invest and increase by reducing the tax burden on them. The House JEC report states, "By accelerating [the Economic Growth and Tax Relief Act Reconciliation Act]ís marginal individual federal income tax rate reductions, expanding and extending [the Job Creation and Worker Assistance Act]ís bonus depreciation, reducing the double taxation of dividend income, and lowering the tax rates on capital gains, this bill will reduce the excess burden of federal taxation and improve the incentives for individuals and firms to engage in economically productive behavior."

    Senator George Voinovich [R-OH] argues that the cuts are "unwise when the administration is projecting $300 billion in deficit spending."

    While any thinking, responsible conservative is opposed to deficits, they must be looked at in the proper perspective. For example a $10,000 debt to the wealthy is not as significant as a $10,000 debt to some family living on the margin of welfare. According to one person who has managed financial success through conservative investment practice over the years, deficits should be looked at in relation to the Gross Domestic Product (GDP) -- the reduction in taxes of $750 billion would be less in terms of the relationship to GDP than we lived with under the Democrats for the past 35 years.

    What worsens things is a government that has the attitude that people cannot be trusted to spend their own money, and therefore will take it from them in the form of taxes and decide how to spend it for the peoples' good. What happens, though, is that the government will spend that money, not on what does the most good, but on what they believe will generate the most votes for their party. Says my economic expert, "If you give the government $100 they will spend $110." To see this, you have only to note that every state, with the exception of Colorado, is in economic trouble right now because they are required to balance their budget each year. When revenues were skyrocketing they spent the money. Now that revenues have declined they cannot pay for the entitlements legislated in during the fat years. Colorado alone has managed to avoid that problem, because Colorado has mandated a more conservative approach to taxation, spending, and f inances. The federal government and each state would do well to remember this lesson.

    Sloppin' the hogs

    Of course the arguments offered by the Dems are hogwash -- especially where they suggest smaller, more nibbly-sized tax cuts. They are proposing things for political expediency. More likely, the would rather see the economy continue to sink, as that is their only hope to defeat Bush in 2004. Their fiscal policies tended to exacerbate -- not help -- the natural business cycles that lead to recession. If Bush, with his tax cut proposals and conservative policies manages to help turn the economy around, he and his party are guaranteed political success for a very long, prosperous time. The only additional thing I would encourage President Bush to do is to make sure he gets Governor Bill Owens of Colorado somewhere on his cabinet.

    © 2003 Tocqevillian Magazine