- The Washington Times - Wednesday, January 8, 2003

In unveiling his 10-year, $670 billion short-term economic-stimulus and long-term economic-growth package yesterday, President Bush served notice to the burgeoning corps of Democratic presidential aspirants. To wit: This Bush White House is determined to buttress the evolving growth from the faltering economy it inherited. If that means engaging the Democrats in hand-to-hand combat in class warfare, then so be it.
As expected, Mr. Bush has fashioned a stimulus package containing both supply-side and demand-side features. First, the bold supply-side initiatives. Rejecting the advice of his political strategists, who cautioned the president against accelerating the implementation of the incentive-laden marginal income-tax-rate reductions for the economy's top earners (and savers and investors), Mr. Bush not only decided in favor of accelerating the across-the-board rate reductions scheduled for 2004, but he also will seek to implement the changes scheduled for 2006. That means the top rate would fall to 35 percent, retroactive to Jan. 1. Moreover, after considering a reduction in income taxes on stock dividends by a reported 50 percent, Mr. Bush eventually decided to seek the complete elimination of the double taxation of dividends. That would benefit the 35 million American households that hold stocks in taxable funds. For small businesses, which create the majority of new jobs, the president's plan would increase from $25,000 to $75,000 per year the amount of new equipment that may be fully expensed.
On the demand side of the ledger, the president wants to immediately increase the per-child tax credit from the current $600 to $1,000. Under the 2001 tax cut, that level was not scheduled to be reached until 2010. It would benefit 34 million families, which would receive rebate checks this year for $400 for each child. His plan would also provide additional help to middle-income families by significantly accelerating relief from the marriage penalty, which compels more than 20 million married couples each year to pay an average of $1,400 more in income taxes than they would pay if they were cohabitating. The 2001 tax-relief program would not have begun to address this problem until 2005, and then only gradually over five years. In addition, federal unemployment benefits would be extended. Also, $3.6 billion would fund Personal Re-employment Accounts, a new program that would provide unemployed workers up to $3,000 to fund job-search costs, including training, transportation, child care and, very important, relocation.
Clearly, the president has proposed an initiative that is every bit as much a long-term growth-oriented plan as it is a short-term stimulus package. How will the Democrats react? Democrats will undoubtedly target their attacks as "tax cuts for the rich."
After spending the past two years complaining about the after-effects of the bursting of the Clinton stock-market bubble, Democrats may encounter political problems criticizing the elimination of the double taxation of dividends. After all, it is a policy action whose undeniable impact will be to raise stock prices higher than they otherwise would be. Particularly problematic for Democrats will be the fact that 84 million individuals, including two-thirds of voters, are now shareholders. Whether or not the dividends shareholders receive are already tax-exempt [defined-contribution pension funds] or tax-deferred [IRAs and 401(k)s], shareholders will benefit, as the value of their stock increases beyond what it would be under double dividend taxation.
What about the Democrats' other class-warfare bugaboo the accelerated reduction of the top marginal income-tax rate to 35 percent? By all means, let us hear the wailing from Senate Finance Committee ranking member Max Baucus, House Ways and Means Committee ranking member Charlie Rangel, Senate Minority Whip Harry Reid, former House Minority Leader Dick Gephardt, former Vice President Al Gore, Sens. Tom Harkin, Joe Biden, Carl Levin, Frank Lautenberg, Jeff Bingaman, Fritz Hollings, Pat Leahy, Robert Byrd, Jay Rockefeller, Barbara Boxer, John Breaux, Barbara Mikulski, Byron Dorgan, Charles Schumer and Jim Jeffords all of whom voted to reduce the top marginal income-tax rate to 28 percent in 1986.

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