Tax-Cutting Genius

[posted by TC]

Recently I was asked:

Tell us, please what wonderful things that Mr. Bush has done for the low and middle income workers in the country, particularly in comparison to what he's done for those with very high incomes.

After a little thought (about five seconds to be sure...) I wrote this:

Let's see... the very first tax breaks that got the economy rolling were given the 'middle class' and lower income taxpayers.

The ONLY groups that didn't directly benefit from that were those who paid no income tax, or were collection the negative income tax laughing called "EARNED Income Credit" wich for some reason confused people. Apparently the concept of not getting back something you've never given is a tough one???

Since then we've seen our economy recover to the point that we're apparently afraid of losing workers... since the pool of unemployed workers is so limited... Or so goes the theory that is supporting legitimizing millions of invaders who decided the legal queues weren't moving fast enough for them to get come fast cash in the US...But, as JFK told the New York Economic Club in 1962:

You have seen the tragedy of chronically depressed areas, unemployed young people. I think this might be one of our most serious national problems: Unemployed young people, particularly those of the minority groups, roaming the streets of other great cities, and others on relief at an early age. The prospect is that in this decade we will have millions of dropouts coming into the labor market at a time when the need for unskilled labor is steadily diminishing. So you share my conviction that, proud as we are of its progress, this nation's economy can and must do even better.

Our choice boils down to one of doing nothing and thereby risking a widening gap between our actual and potential growth in output, profits, and employment - or taking action at the federal level to raise our entire economy to a new and higher level of business activity.

His suggestions included:

One of the great bottlenecks for this country's economic growth in this decade will be the undersupply of highly trained manpower. We can and must step up the development of our natural resources: But the most direct and significant kind of federal action aiding economic growth is to make possible an increase in private consumption and investment demand to cut the fetters which hold back private spending.

In the past this could be done in part by the increased use of credit and monetary tools, but our balance of payments situation today places limits on our use of those tools for expansion. It could also be done by increasing federal expenditures more rapidly than necessary, but such a course would soon demoralize both the government and our economy. If government is to retain the confidence of the people, it must not spend more than can be justified on grounds of national need or spent with maximum efficiency.

The final and best means of strengthening demand among consumers and business is to reduce the burden on private income and the deterrence to private initiative which are imposed by our present tax system: And this administration pledged itself last summer to an across the board top to bottom cut in personal and corporate income taxes to be enacted and become effective in 1963.

I'm not talking about a quickie or a temporary tax cut, which would be more appropriate if a recession were imminent; nor am I talking about giving the economy a mere shot in the arm to ease some temporary complaint. I am talking about the accumulated evidence of the last five years that our present tax system, developed as it was in good part during World War Two to restrain growth, exerts too heavy a drag on growth in peace time: That it siphons out of the private economy too large a share of personal and business purchasing power: That it reduces the financial incentives for personal effort, investment, and risk-taking.

And we've returned to that same type of tax structure between wars, thanks to the incremental efforts of successive Administrations in increasing the tax burden on each citizen:

In short to increase demand and lift the economy, the federal government's most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures. Under these circumstances, any new tax legislation enacted next year should meet the three following tests: First, it should reduce the net taxes by a sufficiently early date and a sufficiently large amount to do the job required.

Early action could give us extra leverage, added results, and important insurance against recession. Too large a tax cut, of course, could result in inflation and insufficient future revenues - but the greater danger is a tax cut too little or too late to be effective. Second, the new tax bill must increase private consumption as well as investment. After-tax income could and should be greater, providing stronger markets for the products of American industry.

When consumers purchase more goods, plants use more of their capacity, men are hired instead of laid off, investment increases and profits are high. Corporate tax rates must also be cut to increase incentives and the availability of investment capital. The government has already taken major steps this year to reduce business tax liability and to stimulate the modernization, replacement, and expansion of our productive plant and equipment.

We have done this through the investment tax credit and through the liberalization of depreciation allowances - two essential parts of our first step in tax revision which amounted to a ten percent reduction in corporate income taxes. Now we need to increase consumer demand to make these measures fully effective - demand which will make more use of existing capacity and thus increase both profits and the incentive to invest. In fact, profits after taxes would be at least fifteen percent higher today if we were operating at full employment.

Next year's tax bill must reduce personal as well as corporate income taxes - for those in the lower brackets, who are certain to spend their additional take-home pay: And for those in the middle and upper brackets, who can thereby be encouraged to undertake additional efforts and enabled to invest more capital. Third, the new tax bill should improve both the equity and the simplicity of our tax system.

He even anticipated the probably initial effect of an accross the board cut:

What concerns most Americans about a tax cut, I know, is not the deficit in our balance of payments but the deficit in our federal budget. When I announced that this kind of comprehensive tax reform would follow the bill enacted this year, I had hoped to present it in an atmosphere of a balanced budget.

His conclusion is quite moving:

This nation can afford to reduce taxes - we can afford a temporary deficit - but we cannot afford to do nothing. For on the strength of our free economy rests the hope of all free men. We shall not fail their faith - and God willing, free men and free nations shall prosper and prevail.

President Kennedy, BTW, took a staggering economy with massive unemployment and turned it around using the same principles advocated and applied by President Bush, with the same reduction in unemployment and stimulus to the economy at large.

I suppose you could legitimately claim the best thing President Bush has done for the country is to listen to and understand the wisdom of President Kennedy and the economists who agree with his advocacy of the free market economic system.

I imagine that to be significantly enhanced by the fact that as an MBA President Bush has his background in economics and business instead of law and politics as have so many of our legislators.

Since we were originally talking about his IQ, not his political acumen it ought to be mentioned that his education uniquely qualifies him among Presidents to evaluate the cost/benefit/risks of economic programs he proposes and supports.

For all the jibes about his being awarded a degree instead of earning it, we need to note that the Ivy League Schools give out Fine Arts and Political Science degrees by the bushel to Legacy Students. Degrees that are hardly 'testable' under any non-academic situation, and thus can't reflect badly on the school issuing them.

Handing out an undeserved MBA would cost them the respect and confidence future students and their parents. They are much too greedy for future student fees to let that happen. In those colleges, as in my own (MOC.edu) the Business Department earns the cash that keeps the others cranking out degrees.