Monday, July 21, 2003

Since I have no time I can only post things I've read that have caught my eye - From this Daniel Gross penned article in

Marked for Debt - The Bush administration says we'll grow out of our deficit. But the Bush tax cuts make that impossible.
By Daniel Gross. Posted Friday, July 18, 2003, at 2:05 PM PT

When he announced the record $455 billion federal deficit last week, Office of Management and Budget Director Joshua Bolten reassured Americans that the red ink will evaporate as soon as the economy perks up. In the long term, Bolten insisted, rapid economic growth will generate the federal revenues needed to close the gap.

Bolten's faith in history is charming, but worrisome. His implication is that just as the '90s boom erased the deficit President Clinton inherited, so economic growth will eventually wipe out the deficit President Bush created.

But Bush's own policies make that very unlikely. Even if the economy rebounds, the tax revenue the federal government needs to balance the budget won't return.

Set back the clock to 1993. Marginal income tax rates topped out at 39.6 percent—a result of tax increases by Presidents Bush I and Clinton. Corporate dividends—mostly received by those in the upper income brackets—were taxed at the same rate as ordinary income. Ditto for income created by exercising options. Capital gains were taxed at a 28 percent rate.

Plainly, these taxes didn't inhibit hard work, investment, or capital formation since the '90s brought an orgy of wealth creation. People made millions in options income, capital gains, Wall Street bonuses, corporate profit-sharing, and the like. Because the rewards went disproportionately to those in the higher income—and hence higher tax—brackets, government revenues grew at a rate far faster than overall economic growth. (For data on tax revenue growth in the 1990s, click here.)

Total government receipts nearly doubled from $1.154 trillion in 1993 to $2.025 trillion in 2000. President Clinton's strategy of raising taxes on higher earners and (largely) holding the line on capital gains taxes worked. It boosted revenues without stifling economic growth and turned huge deficits into huge surpluses.

But President Bush has redesigned the tax code in the past few years. And the changes, by design, will make it much harder for the government to grow out of the deficit. In 2001 and 2002, marginal tax rates were lowered. They were lowered again this year, dropping the top marginal rate to 35 percent. Long-term capital gains are now taxed at 15 percent, down from 20 percent before. And now dividend income will be taxed at 15 percent—regardless of your marginal income tax rate.

As they did in the '90s, the wealthy will receive a disproportionate share of the reward when the economy and the markets pick up again. But because of these tweaks to the tax code, the government will harvest much less of the windfall than it did during the Clinton years.

This is only IF the economy perks up. A bit of optimistic thinking, wouldn't you agree? Even if the economy does perk up statistically it wont make a difference if no one is being hired and unemployement stays the same or gets worse. Try selling that to the voter public that we are out of recession by definition. Try getting the current group of 6.4% who are unemloyed to believe that while campaigning for votes in 2004.


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