Commentary

Tax Plan Revival?

By Stephen Moore
This article was published in the Washington Times, April 6, 2003.

News commentators around the country are celebrating the recent vote in the United States Senate to slice in half the size of President Bush’s bold tax cut plan. A New York Times editorial trumpets the vote as a triumph for “fiscal sanity in the Senate.” CNN (the Clinton News Network) could hardly contain its glee when it described the action in Congress as “a devastating setback for the president’s tax cutting agenda.”

It’s not surprising that the liberal-biased media applauded the no vote on the tax plan. The folks at the indispensable Media Research Center find that “news” items on Mr. Bush’s $725 billion tax relief plan have been running “at least 4 to 1” against the proposal. The media is not serving as a neutral judge of the Bush tax plan; they are serving as its executioner.

But Mr. Bush’s tax cut is not dead — nor should it be. With every passing day there are further flashing signs that the limping economy desperately needs this tax cut stimulant. With consumer confidence recording its fourth straight month of negativity, the stock market bears still growling with discontent, and the manufacturing sector still bleeding jobs, a tax cut stimulus would provide the U.S. economy with the kind of adrenaline rush that a 3 point shot does in the waning minutes of a tied NCAA basketball game during March Madness.

Tax cuts clear away barriers to new job creation and new business investment. This economic growth strategy worked for John F. Kennedy in the 1960s; it worked for Ronald Reagan in the 1980s; and it will work again for Mr. Bush now.

So why the temporary setback in the Senate? George Voinovich of Ohio, one of the three Senate Republicans who bucked his own party on the tax vote, said taxes should not be cut during a time of war. Nonsense. The best way to assure victory in this war against terrorism is to stoke the fires of America’s powerful engine of economic growth so that it’s running again on all cylinders. This is precisely the strategy Mr. Reagan used to win the Cold War. We triumphed against the Soviet Union thanks to a combination of vast military and economic superiority. The goal of the terrorists is to disable the U.S. economy. Pro-growth tax cuts are a powerful defense mechanism to foil this strategy.

The top Senate Democrat, Tom Daschle of South Dakota, complained last week that the Bush plan will blow a grenade-sized hole in the budget deficit. Deficit spending is indeed a big problem in Washington these days. But it is the absence of speedy economic growth (as we grew accustomed to in the 1980s and 1990s) that has thrown the budget into severe imbalance. Without American small businesses making profits and with unemployed workers unable to find decent-paying jobs, how in the world does Mr. Daschle think Americans will generate the tax revenues to balance expenditures and receipts?

Growth and expenditure restraint are the keys to eliminating red ink on Capitol Hill. If President Bush’s tax plan increases economic growth by just 1 percentage point a year and if federal expenses are cut back to the rate of inflation, we will have a balanced budget by the year 2006 and we will even have a $100 billion surplus. Even in Washington, that’s a lot of money.

The crown jewel of the president’s tax plan is the elimination of the dividend tax on owners of stock, which is more than half of all Americans. The economics firm Kudlow and Co. estimates that just that one provision would increase stock values immediately by 5 percent to 15 percent. That boost to the stock market would increase the net worth of American families by between $500 billion and $1 trillion. The Heritage Foundation economic forecasting model says the president’s tax plan would create 3 times as many new jobs as the Senate Democratic alternative.

The White House said again this week that the president will not compromise on his tax plan if the alternative means more jobs lost and less economic growth than America is capable of achieving. And that is exactly what the alternative means. Fight on, Mr. President. Your critics don’t have a leg to stand on.

Stephen Moore is a senior fellow with the Cato Institute.