Last weekend, I quoted the portion of this Investors Business Daily editorial that warned of the consequences of raising taxes as much as is being proposed in some quarters in Washington (and at least one presidential candidate wants to go further).
It seems like a good idea to recite how impressive the recovery from the dual shocks of the NASDAQ/dot-com bubble and 9/11 have been, and how proposed tax increases put all of that in jeopardy, as an earlier portion of the IBD editorial did:
No question: The year 2001 marked a major break for the economy, with one of the largest hits ever to the wealth of Americans.
It could have been an epic disaster. But it wasn’t. Bush did exactly the right thing â€” though he’s still criticized for it today. To get the economy moving again, he pushed through tax cuts in 2001, 2002 and 2003.
Some 113 million people got an average tax cut of $2,216. Families with children got even more â€” $2,864 on average.
Since the last round of cuts in 2003, we’ve had the quietest, and most significant, boom in wealth, income and profits in our history. This explains why the economy, to the surprise of economists and the chagrin of liberal pundits, keeps humming. We’ve gone over the numbers before, but they bear repeating. Since 2002:
â€¢ Real gross domestic product has soared $1.64 trillion, or 16.5%, during a five-year stretch that has yet to see a downturn and that has witnessed average annual growth of 3%.
â€¢ Disposable personal income â€” what’s left after taxes â€” has jumped $2.16 trillion, or 29%, to $9.68 trillion.
â€¢ Productivity, the fuel for future standards of living, has improved 14.3%.
â€¢ Overall employee compensation has expanded 4% a year.
â€¢ Net wealth, the amount people would have after paying off their debts, has swelled $15.2 trillion, or 38%, to $55.6 trillion. That gain in just five years is more than the total wealth amassed in the first 210 years of America’s existence â€” an unprecedented surge.
â€¢ About 69% of Americans now own their homes, an all-time high.
â€¢ The jobless rate, now at 4.4%, remains below its 40-year average. Since August 2003, 7.8 million new jobs have been created.
â€¢ Tax receipts have surged 43%, or $757.6 billion, again thanks to economic growth.
The editorial was written before the April 2007 Monthly Treasury statement reporting an all-time record for single-month receipts was released.
With that report out, it’s clear that the tax-receipt surge is even more remarkable than IBD indicated, because it has actually taken place in a much shorter amount of time. The $2.56 trillion receipts total during the 12 months ended April 30, 2007 is $762 billion, or 42% higher, than receipts for the same 12-month period in 2004, only three years ago — a compound growth rate during that time period of 12.5%.
Now, if Congress and the President could only rein in spending, leave the existing tax system intact for the next couple of years until the end of 2008, and make the 2001 and 2003 cuts permanent so as not to shake up the financial markets (I would be concerned that investors will start reacting negatively if they believe that the cuts will be allowed to expire). Leaving things as is until the next president is sworn in should set the stage for another supply-side tax cut that would include totally eliminating the AMT in 2009. Why not? History shows that further cuts will lead to more revenue and more economic growth.
Who will be the first GOP candidate to recognize the opportunity to build on Bush’s economic success, instead of merely basking in its glow, by making further cuts a part of his platform?