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.
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
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.