Clicking on banner ads enables JWR to constantly improve
Jewish World Review April 18, 2002/ 7 Iyar, 5762

Lawrence Kudlow

Kudlow
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Ann Coulter
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
David Limbaugh
Michelle Malkin
Chris Matthews
Michael Medved
MUGGER
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports

DEM-agoguery

http://www.NewsAndOpinion.com | Once again, Senate Majority Leader Tom Daschle has the story dead wrong on taxes and the economy. "We will never bring up the permanent tax cut the president is advocating," Daschle said at a recent news conference. "It's bad policy, it's wrong, and it compounds the budget disaster we are now facing."

Election-year rhetoric or not, Democrats will be chagrined to learn that this economic recovery is going to be V-shaped -- not anemic. That means economic growth in the next three years is likely to range around 4 percent. As a consequence, budget surpluses will re-emerge as early as next year, and will continue as far as the eye can see. Democrats should put the bi-election arrow they're aiming at President Bush back in their quiver. Recessionary deficits are not going to happen.

The Congressional Budget Office numbers tell a couple of different stories, and the Democrats seem to have compiled a fictional forecast. Right now, the CBO baseline shows slower-than-normal recovery growth, and therefore a weaker-than-necessary outlook for long-term budget surpluses. Historically, the first three years of recovery produce an average yearly growth rate above 4 percent. But the current budget baseline shows annual growth of only 2.6 percent, with the next eight years generating a 3.1 percent long-term growth trend (even though the post-World War II economy has produced average yearly growth of 3.5 percent).

But the CBO also publishes an optimistic scenario that conforms more closely to the U.S. historic record. By raising real GDP growth by a mere 0.3 percent per year and thus taking account of Bush's tax cut, the budget forecast shows a $301 billion surplus by 2005, a $1.3 trillion surplus by 2012 and a cumulative 10-year surplus of $5.9 trillion. Those surpluses would wipe out all publicly held Treasury debt by 2010 and leave an unbelievable $2.4 trillion of "uncommitted funds" -- read, more money than Congress would know what to do with by 2012.

All this illustrates why up-and-coming House member Paul Ryan, R-Wisc., has a much better grasp of the situation than the Tom Daschle pessimists. He notes that the 2001 tax cut would be sunsetted at the end of 2010, which means that unless this tax relief is made permanent, the United States would suffer "the largest overnight tax increase in U.S. history." Ryan has a better plan. He proposes to make the tax relief permanent in order to boost economic growth and job creation, generate greater certainty for investment decisions, and protect families and small businesses from a devastating blow.

Small-business tax burdens are especially important to the health of the American economy. This sector creates between two-thirds and three-fourths of all net new jobs, according to the Small Business Administration. Roughly 90 percent of all U.S. businesses are classified as small businesses, partnerships and solely owned proprietorships for IRS purposes. And they are especially sensitive to personal tax-rate changes.

According to a research paper authored by Princeton University economic professor Harvey Rosen, and published by the nonpartisan National Bureau of Economic Research, small-business sales revenues exhibit an elasticity of 84 percent with respect to individual tax rates. This means that lower taxes cause an expansion of small-business sales that, in turn, open the door to more job creation. Using Rosen's data, it ends up that 88 percent of the so-called static revenue loss from a small-business tax cut is actually recouped in the very first year of the tax cut. So, as Democrats continue to whine about tax cuts for the rich, they're ignoring the huge job-creating benefits of giving tax relief to small businesses -- the real backbone of the U.S. economy.

And how about telling the truth about taxes and the "rich"? Successful upper-end income earners are already shouldering a massive tax burden. For 1999, the most recent year for which complete Internal Revenue Service statistics are available, 6.3 million taxpayers -- whose incomes were in the top 5 percent -- paid nearly 60 percent of all income taxes, according to AP reporter Kurt Andersen. This group had adjusted gross incomes above $120,846 a year, meaning that a fireman and his schoolteacher wife -- each earning about $60,000 -- would qualify among the nation's richest.

Meanwhile, the wealthiest 1 percent of Americans pay more than a third of all taxes, and the taxpayers in the bottom half -- those who earn less than $26,415 a year -- pay only 4 percent of total income taxes.

This is the bulletproof, high-priority argument for making Bush's tax cut permanent. This cut wouldn't merely prevent the wealthy from paying an even greater share in future years, it would free up the great American small-business, job-creating machine that will increase economic growth and generate more wealth in the next decade.


JWR contributor Lawrence Kudlow is chief economist for CNBC. He is the author of American Abundance: The New Economic & Moral Prosperity. Send your comments about his column by clicking here.

Up

Kudlow Archives


©2001, Lawrence Kudlow