A letter signed by 110 economists, including three Nobel Prize winners, urges Congress to support the main elements of President Bush’s $647 billion tax-cut plan, make his 2001 tax cut permanent and restrain federal spending to spur the sluggish economy.
“As a rule, government cannot create wealth or expand the economy. Only the private sector can do that,” said the letter sent this week to all members of Congress. “Government can, however, hinder economic growth through excessive taxes, high marginal tax rates, over-regulation, or unnecessary spending.”
The economists, including Nobel laureates Milton Friedman, James Buchanan and 2002 winner Vernon Smith, said increased spending to combat terrorism is warranted but that “excessive federal spending has a dampening effect on the American economy.”
To remedy that, Congress should “end programs that outlive their usefulness and roll back government’s share of the Gross Domestic Product.”
According to the Congressional Budget Office, government spending represented 19 percent of the GDP in 2002, a level that has remained roughly stable during the past 15 years but threatens to explode to 40 percent because of entitlement spending by 2075.
The “wobbly” financial markets can gain solid footing again, said the economists, if Mr. Bush’s $1.35 trillion tax cut in 2001 is made permanent.
“Investors and individual taxpayers will be able to make better decisions on their finances if they have greater confidence about what tax laws they will be facing in coming years,” the letter said. “It is imperative for Congress to make the entire 2001 tax cut permanent.”
The economists also applauded Mr. Bush’s proposal to eliminate the double-taxation on corporate dividends, a policy they said is “especially harmful to economic growth.”
Support for Mr. Bush’s tax plan largely follows party lines. House Democratic leaders have scheduled an event Tuesday on Capitol Hill to argue that the president’s plan is neither fair nor fiscally responsible and would leave state governments starving for money.
The various Democratic tax-cut proposals are dramatically smaller, short-term, targeted more narrowly and feature payments of at least $300 to all families, including those who pay no federal income tax.
A spokesman for the Democrats on the House Appropriations Committee criticized the president’s plan for being too skewed toward “the superwealthy.”
“The White House needs to wake up and realize that giving their rich cronies another tax break is not going to halt the Bush recession,” the Democratic aide said.
“We need to put money in the hands of people who are having trouble putting food on their table, not people who want to buy a second yacht.”
But Sen. Evan Bayh, Indiana Democrat, said he is “keeping an open mind” on supporting a pro-growth tax bill that has many of the features of the president’s package. “I’m not someone who has an allergic reaction to the dividend proposal as some do,” Mr. Bayh said.
“I think you’ll see a great many elements of the president’s proposal [in the final bill]. I think, frankly, we’ll improve it to make it even more growth-oriented for the economy today.”
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