OUTSIDE THE BOX
Following the Reagan Rule
Bush's plan would stimulate growth. No wonder it depresses Democrats.
URL:http://www.opinionjournal.com/columnists/pdupont/?id=110002880
BY PETE DU PONT
Friday, January 10, 2003 12:01 a.m. EST
The Economic Club of Chicago may seem a strange place to unite Americans, but that is what President Bush did there on Tuesday with the jobs-and-growth program he proposed. Economic growth is a common priority that draws Americans together, for we all need the jobs it creates, the resources it provides employers to invest in new machines and technologies, and the larger investment returns that keep everything from our local charities to our kids' schools and the market economy prospering.
If you are an economic conservative, growth is what creates more jobs, higher incomes, and better goods at lower prices. And economic growth meets liberals' needs too--the higher tax receipts it generates provide the funding for expanded government programs. A 0.1% increase in the growth rate means about $2 billion to the U.S. Treasury.
So how do we spur economic growth? By increasing the rewards for work and reducing the cost of producing goods and services. Reducing tax rates accomplishes both. Strong growth occurred when JFK reduced tax rates in the 1960s, and federal revenues increased by one-third. Ronald Reagan again spurred growth by lowering tax rates, creating 18 million net new jobs and raising the nation's economic growth rate by a full percentage point.
And President Bush's proposals will create growth in 2004 and beyond. The president's plan is broad and it is deep; 92 million taxpayers would receive tax reductions averaging about $1,100. Speeding up the income tax rate reductions would reduce some Americans' taxes. Some 46 million married couples would get an average $1,700 reduction in the marriage penalty; 40 million families and single mothers with children would average a $1,500 tax saving due to a larger child-care deduction. Congress passed all these tax reductions in 2001; the president wants to speed up their effective dates. In addition, some 13 million elderly people will see an average $1,400 tax cut due to the ending of the double taxation of dividends.
Workers who have lost their jobs would get extended unemployment benefits, but more importantly they would get $3,000 "personal re-employment accounts," up-front dollars to help them get a job, and they could keep the remaining money if they get a job quickly. This idea could revolutionize unemployment law in the same way the work-instead-of-welfare program in the Clinton administration revolutionized welfare, by providing a strong incentive to get back into the job market.
Liberals argue that the state of the stock market is a rich man's problem. But when the market declines, as it has over the past three years, consumers spend less, retirees have to go back to work because their savings have evaporated, businesses cannot raise money for expansion or new ventures, and state governments lose large amounts of revenue when their capital gains tax receipts dry up. Ending the double taxation of dividends--a policy Jimmy Carter proposed and the New York Times endorsed in 1977 (no joke)--is fair because nothing should be taxed twice. And it would help solve all these problems by reducing the cost of equity and growing the market.
By contrast, the economic plan the Democrats announced on Monday does very little to stimulate anything. Its central feature is another $300 rebate, repeating the rebate of 2002 which did little to stimulate economic growth. Their plan is supposed to be a shot of adrenaline, but what the economy needs is a long-term growth stimulus to help it recover from three years of poor performance.
For a quarter of a century liberals and the Democratic Party have been playing the class card against tax reductions. They are always too beneficial to the wealthy, victimizing the middle class, will rob the government of revenues, are not necessary, etc., etc. And yet they have worked--helped the economy to grow--every time.
Further, tax cuts have reduced the tax burden on the middle class: Its current burden is just 6.7% of all income taxes, the lowest it has been in 44 years. As for the wealthy, well, their tax burden has gone way up. According to the IRS, the top 1% of families paid 16.7% of all income taxes in 1970; they now pay 37.4%.
The president's proposals will continue this trend. More families will be paying the lower 10% income tax rate, for example. A family with two children and $40,000 in income will see its tax burden decline by 96%, while the median-income family's taxes will go down by 22% and a family earning $200,000 will have its tax burden relieved by 9%.
The president was very good in Chicago because he followed the Reagan rule for successful public policy advocacy: Paint your vision in "bold primary colors that make it unmistakably clear where we stand." Mr. Bush made the case for his growth and jobs plan in bold primary colors all right, and so will find growing popular support for it.
What must seriously worry the Democrats in Congress is the number of people who will benefit from his proposals: nearly 100 million, including 35 million investor households, tens of millions of older Americans, and people with children and married couples. That is an enormous constituency to oppose, which is why in the end, after some months of liberal howling, most of the president's plan will be enacted into law.
Mr. du Pont, a former governor of Delaware, is policy chairman of the Dallas-based National Center for Policy Analysis. His column appears once a month. |
