Commentary

Focus on Growth, Not Deficit

By Stephen Moore
This article originally appeared in USA Today on April 24, 2003.

The biggest problem with the U.S. economy today is not our budget deficit, but our growth deficit.

We have lost 2 million jobs in the past two years, and the economic-growth rate has fallen by half from the prosperous pace of the 1980s and ’90s.

Until we get the growth-deficit problem fixed, the budget cannot be balanced. If we can increase the economic growth rate by just one percentage point a year, the federal government will collect $1.5 trillion more taxes during the next decade simply by putting America back to work.

That is why President Bush’s economic-stimulus tax cut is crucial to our economy. Its beneficiaries will be workers, investors, states and cities — all of which are front-line victims of anemic economic-growth rates.

The jewel of the president’s tax plan is the proposal to eliminate the double tax on stock dividends.

Currently, dividends are taxed as corporate income to businesses that pay them, and then as personal income to individual shareholders receiving the dividends. This can result in tax rates on dividends as high as 70%. These punitive tax rates reduce stock values, capital investment and savings. And, of course, it is fundamentally unfair to tax the same income twice.

Many economists believe that by eliminating the double taxation of dividends, stock values will rise by as much as 10% immediately. This is very good news for the 85 million Americans who own stock but have seen their retirement incomes disappear during this bear market.

The problem of deficit spending should be controlled by expenditure control. If Congress would simply hold federal spending to a 2% growth rate a year for five years, we could balance the budget and afford President Bush’s tax cut.

We should all remember the words of President John F. Kennedy, who said: ”It is a paradoxical truth that when tax rates are too high, the economy will never produce enough jobs or enough revenues to balance the budget.”

Let’s get the economy in to high gear again with tax cuts and balance the budget by cutting out-of-control government spending.

Stephen Moore is a senior fellow in economics at the Cato Institute and president of The Club for Growth.