Sunday, July 20, 2003

Finally, some overdue good news for workers: Your paychecks are getting higher, thanks to the recently passed Bush tax cut.

The new tax cut officially took effect July 1. This means that the typical middle income working family with two or more children will save more than $1,200 on federal income taxes this year.

Unfortunately, the Democrats are already trying to snatch this money away by canceling the tax cut. At least four of the presidential wannabes in the Democratic field say they want the tax cut repealed even before workers get a penny of relief. So much for the pro-worker Democratic agenda.

Here’s more good news: The stock market has risen almost 10 percent since the tax cut passed. This increase in stock values has increased Americans’ wealth by almost $1 trillion already. The cuts in the capital gains tax and the dividends tax (to a 15 percent rate for each) has made stock ownership more valuable, and shareholders are reaping big monetary gains. So a tax cut of $350 billion has already caused asset values to rise by nearly three times that amount. That’s one heck of a return on investment.

This mini-rally of the stock market is exactly what advocates of President Bush’s tax cut predicted. We argued that the reduction in the income tax rates and the dividend and capital gains taxes would stimulate the economy almost immediately by reversing the stock market decline and increasing the after-tax value of equities.

Mr. Bush’s opponents not only dismissed the case for an improved stock market, they projected that the Bush tax cut would harm the economy by jacking up long-term interest rates. Democratic Senator Kent Conrad of North Dakota moaned that the Bush economic plan would “raise interest rates, crowd out private sector investment and slow long-term economic growth.”

Mr. Conrad and other critics have been wrong on all counts. It is true that the overall economy is still growing too slowly. But from the time the tax cut was passed through July 12, the Wilshire 5000 index rose from 8,773 to 9800, a 9.2 percent gain. The NASDAQ is up even more, 14.2 percent. Because 52 percent of Americans own stock, the wealth effect of this market rise has been broadly distributed to income groups.

Now it is undeniably true that hundreds of factors impact the stock market other than taxes. The stock market could easily capsize again next week, and the Dow Jones could tumble again. But so far at least, the stock market as a whole seems to like the tax cut as much as investor-class voters do.

Here is what is even more impressive. Interest rates have not risen. They have fallen in response to the tax cut. In fact, just a few weeks ago the mortgage interest rate slid to below 5 percent for the first time since before Elvis Presley died. The average home mortgage rate has fallen by some 20 basis points since the middle of May.

The tax cut probably did not cause the interest rates to fall, but these numbers are the equivalent of a Boston cream pie in the face of the tax-cut skeptics who predicted soaring interest rates that would burden homeowners and small businesses. It is worth noting here that in the 1980s the anti-Reagan skeptics also said that tax cuts would cause higher inflation and higher interest rates, and both fell by half during his presidency.

So the Bush tax cut is not just putting more money into workers’ pockets, it’s helping their IRAs and 401k retirement plans rebuild wealth that has been lost since 2000. That’s a supersized payoff from a tax cut that is only two months old.

Mr. Bush is developing one of Ronald Reagan’s most endearing qualities: Both on military and domestic policy, he is time and again proving his staunchest and most self-righteous critics on the left dead wrong.

No wonder they don’t like him or his policies.

Stephen Moore is president of the Club for Growth.

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