Editorial of the Day: IBD on Tax Cuts
President Bush reportedly might float a $500 tax rebate plan in his State of the Union address. Relief is always welcome, but permanent cuts stimulate the economy. Leave gimmicks to the Democrats.
….. Those are not the kinds of medicines that really will prove effective for an economy headed for a possible slowdown. But the president, speaking to the Union League Club of Chicago, identified Monday the things that are most important for keeping the economy going.
….. To pretend that anything less than making Bush’s supply-side tax cuts permanent will change investors’ and workers’ behavior for the better and keep the good times rolling is taking a step backward to the discredited and disastrous Keynesian economic theories prevalent in the 1970s.
We need to get the language right on this. “Making Bush’s supply-side tax cuts permanent” is, in reality, “making the current tax-rate structure permanent.”
With very small exceptions, we have been operating within the framework of the tax laws and rate structure in place since 2003 — 5 years ago.
That structure that everyone has gotten used to is scheduled to change in two years, with rates going up to their pre-2003 (possibly pre-2001) levels. If that change occurs, it will be a massive tax increase after 5 years of the current system, NOT a reversal of tax cuts long since ingrained into the country’s economic fabric.
As to how to deal with the current situation, I say do both: Make the current system permanent for its growth-stimulating effects, and throw in a one-time rebate to juice consumer spending. Mr. Bush should veto anything that doesn’t do BOTH at the same time.
_______________________________________________
UPDATE: Of course, a more effective stimulant would be a further across-the-board rate cut in the neighborhood of 10%, with the highest rate dropping from 35% to 32% and the lowest from 10% to 9%.
Rebates are nice but not stimulative. Tax rates need to be slashed! Corporate rate 0%, Capital gains at same as lowest income rate - 10%. Top income rate back to 28%. Foreign capital would flood in, the economy would surge, unemployment would reach a true floor while real wages peak, and federal tax revenues skyrocket. The problem would be that the government (state and federal) would spend it.
Comment by Joe C. — January 10, 2008 @ 9:59 am
#1, Agreed, on all counts.
Comment by TBlumer — January 10, 2008 @ 12:59 pm