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12/30/2002 Archived Entry: "wary of tax cuts"

AMERICANS WARY OF TAX CUTS: Look for many more news stories like this one. The Associated Press, via Yahoo!, is reporting that by a 2-to-1 margin Americans want to hold off on more tax cuts as the war approaches.

This is why it is critical that the Bush administration connect the dots between lower taxes and more rapid economic growth. Tax cuts are not a one-time quick fix, as one of the respondents suggested. They are a necessary clearing of disincentives to earn income, expand businesses, create wealth and otherwise engage in productive economic behavior. Properly formulated, with emphasis on lowering marginal rates, tax cuts can increase the value of work and investment. From the perspective of raising revenue, applying current marginal tax rates to a stagnant tax base is self-defeating. Lowering those rates convincingly will help stimulate new economic activity that will enlarge the tax base and in the long run recoup foregone revenue. Bush needs to make the case that only by reducing our outrageous tax take, higher than at any time since World World II, and lowering rates we can unleash a frenzy of free market activity needed to put people back to work and finance the war on terror.

America won the Cold War with a defense buildup that coincided with pro-growth tax cuts during the Reagan years. This is why national military spending amounted to about 6 percent of GDP during the 1980s compared to 9.5 percent during the 1950s. Only by making the serious argument for lower taxes, and constructing tax cuts that will conform to this argument by actually stimulating growth, can Bush turn public opinion. And even if public opinion remains unenthusiastic, he needs to remember that ultimately the American people will care most about where the economy ends up as a result of his policies. That's why Bush needs to focus like a laser beam (as Bill Clinton would say) on growth.