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Taxcuts NOW More Than Ever!
by Scott Shore
15 April 2003 

While some well-meaning Republicans may believe that new revenues will go to pay off the Federal debt, these innocents forget that for liberals and Democrats new revenues are the fuel for newer, bigger and extended government programs.

This column was written in response to George Robertson's April 6th
column, Tax Cuts Paid For With Other People's Money.

One is never surprised when Democrats and liberals call for higher taxes or reduced tax cuts. It is something else altogether when the reincarnated Herbert Hoovers of the GOP call for less tax cuts. Certain timid Republicans have never fully believed that lower taxes mean greater macroeconomic prosperity. This attitude remains in spite of the unparalleled prosperity of the Reagan-Bush economic boom or even the boom following JFK’s early "supply side" economics in the 1960’s.

The "Hoover" crowd has never learned the reality of politics. While these well-meaning Republicans may believe that new revenues will go to pay off the Federal debt, these innocents forget that for liberals and Democrats new revenues are the fuel for newer, bigger and extended government programs. I would challenge these tax-supporters to show a single incident in modern times when new revenues went to retire debt. Almost as shocking is the naïve belief that new revenues will be accompanied by spending cuts. Giving the Federal government tax revenues and then asking for restraints on spending is as likely to happen as giving an alcoholic a new bottle of Jack Daniels but asking the poor soul to show restraint.

The way to cut deficits is, and always has been, to receive revenues based on actual economic growth. An unexpected upturn in the economy can turn doom and gloom predictions of never-ending deficits into a surplus in a matter of a year or two. The accuracy of macroeconomists and econometricians is roughly the same as Tarot card readers and phone psychics. This is similar to the accuracy of financial analysts in picking stocks relative to the random choices of chimps. In most years the chimps have a better record.

Spending cuts will only occur if the Government monster is starved from its essential food-tax dollars. If Republicans stand for anything it must be limited government assured by limiting the source of big government dollars and affirming the belief that working Americans should be able to keep as much of the money they earn to spend in the way that they-the taxpayers-see fit. This is the heart and soul of the Republican economic platform.

To paraphrase "The Club for Growth", double taxation investor equity have severely depressed share prices and created an unhealthy shift to debt on corporate balance sheets. It is estimated that the ending of double taxation of investor income would also increase static after-tax cash flow for the Standard and Poors 500 by more than 15%. "With stock prices down from their 2000 highs by 31%, 44% and 73% respectively for the Dow, S&P 500 and the NASDAQ, we’ve never needed a shot in the arm more than now…President Bush’s tax bill would do the job." The Club for Growth report continues, "President Reagan and Margaret Thatcher cut taxes to win the "Third World War." President Kennedy reignited prosperity from the sluggish Eisenhower/Nixon era by tax-rate cuts. Surely our Senate does not want to emulate the 16 years of Johnson, Nixon, Ford and Carter with tax increases and slow growth. Even the four years of President Bush senior were plagued by slow growth and higher tax rates." President Clinton was a quick study and became a tax cutting, pro-growth President early in his presidency.

A contributor to this site mentions that President Bush’s tax cuts do not show surpluses in the foreseeable future. Partially, this is due to the static analysis required by the Congressional Budget Office that does not account for changed behavior due to changed economic incentives. The previous contributor even resorts to the typical "Mr. Rich" versus "Mr. Average" analysis-the classic Democratic argument. Two issues are of note: One is that the most important thing is economic growth and new opportunity for all Americans and not the relative impact of tax cuts. The fact that the wealthy do better under tax cuts is no surprise given that they are the major tax contributors! Secondly, his math is based on a static model of future tax benefits to Mr. Rich and Mr. Average. Unfortunately, this static model has NEVER been predictive. It turns economics from a dynamic living organism into an algebraic equation. Finally, the idea that tax cuts are placing an impossible burden on future generations is false. The indebtedness of the future is totally dependent on the rate of economic growth. The nominal level of debt is not what is important. What is critical is the percentage of debt to GDP or the entire economy.

Nevertheless, we see weak-kneed Republicans like the toxic Sen. Lincoln Chafee of Rhode Island and others joining the "sky is falling" Democrats. The President is right in asking not only for his original tax cuts but also accelerated tax cuts. This is more essential now than when the cuts were first called for. One does not raise taxes during a recession. The impact of accelerated tax cuts will be immediately felt on the capital markets with the end of double taxation of shareholders. Unlike the Democratic demagoguery, these shareholders are typically retirees and pensioners. Moreover, tax cuts should be directed at paychecks. An across-the-board cut on FICA and withholding taxes would put dollars in the hands of consumers quickly and restore purchasing and consumer confidence overnight.

The Republican Party must remain firm in the few critical issues which define it. Perhaps the most salient issue is the reduction of government through reduced taxation and the concomitant empowerment of individuals through greater access to the fruits of their own labor and capital. The second issue is a vigorous foreign policy and defense posture that gives America a meaningful purpose on the world stage in defense of freedom. This is not only good policy but it is proven to be the only winning formula for the Republican Party.


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