The tax-cut compromise that has been worked out in conference is a triumph for pro-growth economic policy. All pro-growth Republicans should support this tax cut enthusiastically.
Yes, this tax cut is not as large as many of us would have liked, and thus it may not provide a huge immediate stimulus (but it will help in both the short- and long-term). And yes the tax-cut package has some severe drawbacks — most notably the $20 billion give-away in funding to the states.
But on balance, it is the most pro-growth tax legislation since President Reagan's 1981 tax cut. It has four extremely positive pro-growth features:
1. It cuts the dividend tax to 15 percent immediately.
2. It cuts the capital-gains tax to 15 percent immediately.
3. It cuts the top income tax rate from 39 percent to 35 percent.
4. It front-loads all the tax cuts so they take place right now — when the economy needs the steroid boost. This is in contrast to the 2001 tax bill, which foolishly back-loaded the tax cuts and thus stunted their impact.
Also, the real 10-year price-tag on the package will be larger than $350 billion, because there is a high likelihood that the tax cuts will be made permanent in 2007 — as they should be. The Wall Street Journal's front-page story of May 18 agreed. The headline read: "Tax Cuts Are Bigger than They Look in Budget."
Many of my most reliable allies in the House moan that the tax bill is too small and has too much spending. I'm sympathetic. Yet this is the best that we could have possibly hoped for given the narrow Republican majority in the Senate and the ideological make-up of the upper chamber. This is a victory, one made up of rate cuts on capital gains, dividends, and income taxes. Republicans should take it to the bank and fight for full dividend-tax repeal after the elections.
One last point: The fact that the Daschle-Pelosi Democrats, with a few notable exceptions, are almost unanimously against the tax cut, is indication that the party has become reflexively opposed to wealth and job-creating tax cuts. The Democrats are no longer the party of prosperity and tax cuts as they were under JFK. They are now the party of income redistribution, class warfare, and austerity economics. They lost because they are devoid of any alternative economic-growth policies that American voters find even semi-plausible.
As such, this tax cut is a profound economic and policy triumph for President Bush and Republicans in Congress. And it is an even greater victory for American taxpayers, workers, and investors.