Wednesday, July 26, 2006


Less is More

From Tuesday's WSJ On-line:

Rising Tide
Tax cuts are good for everyone--and everyone knows it but Washington Democrats.BY PETE DU PONT
Tuesday, July 25, 2006 12:01 a.m.

John F. Kennedy believed that "an economy hampered by restrictive tax rates will never produce enough revenue to balance our budget, just as it will never produce enough jobs or enough profits." So he proposed income tax rate reductions, which the Democratic Congress enacted the year after JFK's death. Back then, Democrats were for them: more than 80% of Democratic senators and representatives voted for the Kennedy tax cuts.
My, how times have changed. Today the Democratic Party is so vehemently opposed to income tax cuts that when President Bush's reached their final vote in May 2003, only 4% of Democratic legislators (2 of 48 senators and 7 of 205 representatives) voted "yes."

Opposing tax cuts has become the mantra of the liberal left. Sen. John Kerry wants to roll back Bush's "unaffordable tax cuts." Senator Mark Dayton (D., Minn.) called the cuts "dangerous and destructive and dishonorable." Bill Clinton in 2003 said the cuts were "way too big to avoid serious harm." And various New York Times editorials called them "economically unsound," claimed that "they will increase the deficit by hundreds of billions of dollars" and said they were unlikely "to stimulate the wallowing economy." Earlier this month House Minority Leader Nancy Pelosi promised that the election of a Democratic House in November would result in a "rollback of the tax cuts."

Of course they have it backwards. President Bush's personal income, capital gains and dividend tax rate reductions have created economic growth, significantly increased government tax receipts, and reduced the federal deficit by nearly $130 billion. As the New York Times was forced to admit in its front-page headline on July 9, a "Surprising Jump in Tax Revenues Curbs U.S. Deficit." But it isn't surprising at all; the truth is that when tax rates go down, economic activity goes up.

Mr. Bush signed the most recent tax cuts into law in the spring of 2003. In the past 33 months the size of America's entire economy has increased by 20%--or, as National Review Online's Larry Kudlow put it, "In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy."Emphasis mine

In the 2 1/4 years before the 2003 tax cuts, economic growth averaged 1.1% annually; in the three years since it has averaged 4% per year, and in the first quarter of this year it was 5.6% on an annualized basis. Inflation-adjusted per capita GDP has grown 7.8% from 2003 through the first quarter of this year.

According to the government's establishment survey, in the 36 months since the tax cuts became law, 5.3 million new jobs have been added to the economy. According to its employment survey, 288,000 jobs were added in May and 387,000 in June. The unemployment rate dropped from 6.1% when the bills were signed to 5.4% at the end of 2004 and 4.6% today, and the rate has gone down for men, women, blacks and Hispanics. Hourly wage rates for workers are up 3.9% in the past year, and they increased at an annualized rate of 4.6% in the second quarter of this year, the highest quarterly rate in nearly 10 years.

Incomes are up too. As Stephen Moore noted in The Wall Street Journal, "the percentage of Americans earning more than $50,000 a year rose from 40.8% to 44.2%" between 2002 and 2004. As for very wealthy families, the portion of total income "captured by the richest 1%, 5% and 10% of Americans is lower today than in the last year of the Clinton administration."

All this has been good news for the government. Federal tax receipts increased by 15%-- $274 billion--last year and 13%-- $206 billion--in the first nine months of this fiscal year, which, as the Journal points out, means the nine-month increases for the past two years represent the highest growth rates in 25 years. Looking ahead to the end of this fiscal year, total inflation-adjusted government receipts will likely be 23% above 2003 when the Bush tax cuts were signed into law.

Reducing the capital gains tax rate from 20% to 15% increased capital gains tax receipts by 79% from 2000 to 2004. Cutting the dividend tax rate by more than half--from 39.6% to 15%--increased dividend tax receipts by 35% from 2002 to 2004. And corporate tax receipts have nearly tripled since 2003, reaching $250 billion for the past nine months, 26% higher than the same period last year.

Tax cuts work, and work well, for individuals, employers and even the government, which sees its revenues increase dramatically when tax cuts are enacted and left in place over time.

State governments are coming to the same conclusions. Rhode Island Democrats came to realize their 9.9% top income tax rate--the third highest in the nation--was costing the state business and jobs, so they teamed up with their Republican governor to enact a flat-tax option: pay 7.5% (which phases down to 5.5% over time,) without deductions, instead of 9.9% with them.

Arizona's Democratic governor, Janet Napolitano, signed a 10% across-the-board income tax rate reduction. Oklahoma has reduced its income tax rates by 20%, and New Mexico's Democratic governor, Bill Richardson, cut his state's top rate from 8.2% to 4.9% and its capital gains tax rate in half. Experience has shown that such reductions will be very good for these states' economies. In the late 1970s, when Delaware had the nation's highest personal income tax rate at 19.8% (and also its lowest credit rating and second highest unemployment rate), it began reducing top tax rates down to 5.95%. Over 20 years income-tax revenues increased in every year but one, and became 300% greater than they had been.

The other side of the coin is the government spending rate, for it has grown by more than $800 billion--nearly 50%--during the Bush administration. Excluding war and homeland security expenditures, it has grown about 7% a year, and virtually nothing has been done to stem it.
A veto or two by the president would help, and so would some spine in the Republican House and Senate. A recent National Taxpayers Union Foundation study found that in 2005 the average Republican House member voted to increase discretionary spending by $168 billion, close to the average Democrat's $178 billion. Republicans senators' votes averaged $183 billion in new spending; Democratic senators $217 billion. Compare these numbers to the golden days of the Gingrich leadership: In 1997 the average House member voted to reduce spending by $6 billion while the average senator's increase was only $4 billion.

So there is still economic work to be done in the White House and Congress. But President Bush's tax reductions have been the most successful economic growth and opportunity work of any president in a quarter of a century. To paraphrase JFK, tax rate reduction is indeed a rising tide that lifts all individuals to greater opportunity.
Mr. du Pont, a former governor of Delaware, is chairman of the Dallas-based National Center for Policy Analysis. His column appears once a month.


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There's no doubt - unless you flunked economics BIG TIME, that allowing the productive private economy to keep what it earns means a huge windfall for the nonproductive public sector. It's amusing to watch rich Senators like professional gigolo John Kerry bash THE RICH like he didn't belong to that club.

I enjoy combining Kerry, a club and bashing all in one sentence. It's what he deserves for being so painfully stupid while simultaneously being so full of himself. I hope this Gomer runs again.