No Way to Boost the Economy
"Apart from its economic flaws, the measure is flat-out unfair. Of the $54
billion in accelerated tax cuts, every penny would go to the top 30 percent of
taxpayers. Half would go to the top 5 percent. Eighty percent of the benefits
from the capital gains tax cuts would go to the top 2 percent of households.
Only one tax cut, a supplemental rebate for people who paid less than $300
in income taxes this year, would directly help poor and working-class
Americans. The Congressional Budget Office estimates that just $2.3 billion
of the $100 billion the bill pledges for the stimulus in 2002 would be spent to
lengthen cash and health benefits for unemployed workers. Sadly, these
groups are the ones most likely to spend and stimulate the economy. They
suffer the most during recessions, yet the Republican leadership wants to
help them least."
From The New York Times
EDITORIAL
October 20, 2001
The first item on the House agenda next
week will be the Republican
leadership's economic stimulus bill. Nobody
doubts the need for an economic transfusion
of some sort. But this bill is not the right way to achieve it. Even the Bush
administration has expressed doubts. Paul O'Neill, the Treasury secretary,
described the measure as partly "show business." And while the White
House rebuked Mr. O'Neill for his apostasy, President Bush himself is said
to have misgivings about adding a huge new layer of tax cuts to those already
enacted.
Since the package is expected to be passed by the House, it will be up to the
Senate to produce an alternative that is efficient, temporary, safe and
equitable — virtues in which the House bill is almost wholly deficient. The
legislators can begin by ridding the bill of provisions that have little or no
chance of reviving the economy any time soon.
For example, eliminating the corporate alternative minimum tax, at a cost of
$25 billion in 2002, would not guarantee a single cent of new investment. It
would simply give money to businesses that usually find a way to elude taxes
through deductions and loopholes anyway. Indeed, misdirected corporate
tax breaks could even hamper growth by reducing corporate taxes on the
state level, forcing states that are required by law to balance their budgets to
cut spending. Lower spending would hinder economic recovery.
The bill would create another short-term danger by lowering tax rates on
capital gains held more than one year but less than five years. If investors
took advantage of the lower tax rates and sold shares to raise cash, share
prices would drop. Private wealth would fall, at least on paper, and
consumers would spend less. Both Robert Rubin, the former Treasury
secretary, and Alan Greenspan, the chairman of the Federal Reserve Board,
have warned of this possibility.
The package would also pose a threat to the economy's long-term fiscal
health. Only two of the bill's 15 tax-related initiatives would expire after
2002. The Treasury would lose a stunning $60 billion in tax revenues —
almost 40 percent of the bill's cost — in 2003 or later, when the economy
should already have recovered. The resulting deficit would drive up
long-term interest rates across the entire economy, stunting growth.
Apart from its economic flaws, the measure is flat-out unfair. Of the $54
billion in accelerated tax cuts, every penny would go to the top 30 percent of
taxpayers. Half would go to the top 5 percent. Eighty percent of the benefits
from the capital gains tax cuts would go to the top 2 percent of households.
Only one tax cut, a supplemental rebate for people who paid less than $300
in income taxes this year, would directly help poor and working-class
Americans. The Congressional Budget Office estimates that just $2.3 billion
of the $100 billion the bill pledges for the stimulus in 2002 would be spent to
lengthen cash and health benefits for unemployed workers. Sadly, these
groups are the ones most likely to spend and stimulate the economy. They
suffer the most during recessions, yet the Republican leadership wants to
help them least.
The nation needs a stimulus package that will send money where it is needed
most. That might include increasing unemployment benefits through federal
subsidies. Existing federal investment programs in high-return areas like
education and infrastructure could be accelerated. Any other tax breaks for
corporations should be aimed only at new investments that were unplanned
or unscheduled — not just unused — before Sept. 11. And to minimize the
effect on the nation's finances, all these initiatives should expire after 2002.
nytimes.com |
