I.O.U.S.A - Addison Wiggin [39]
Ultimately, the theory goes, government can maximize tax revenue by setting tax rates at a level low enough to spur economic activity and “ grow ” the economy out of any fi scal crises that may arise. If, for example, the tax rate is low and the economy grows, tax revenues for the government will increase.
Conversely, if taxes are high, there will be no capital for businessmen to reinvest in the economy; therefore tax receipts to the government will be low.
The theory is sound, but even Laffer admits it has its limitations. “ Sometimes tax cuts are good for the economy, ” he told us when we visited his offi ce in
We ’ re running a completely schizo-
Nashville,
“ sometimes they
’ re not.
phrenic tax and spending policy
Sometimes governments behave
right now. We ’ ve got a big gov-
excessively and raise taxes way
ernment - spending program, and
beyond what they should. ”
a small government tax program,
which is a recipe for defi cits as far
At the moment, “ we ’ re running
as the eye can see.
a completely schizophrenic tax and
— HARRY ZEEVE
spending policy, ” Harry Zeeve, the
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Chapter 5 The Leadership Defi cit 77
national fi eld director for the Concord Coalition, points out in the fi lm. “ We ’ ve got a big government - spending program, and a small government tax program, which is a recipe for defi cits as far as the eye can see. ”
The fi rst round of tax cuts, in 2001, were titled the Economic Growth and Tax Relief Reconciliation Act of 2001 and hoped to take the Clinton era surplus and put it back in the hands of American taxpayers. And it worked — for a while.
But by 2003, the United States faced a stagnant economy, falling employment rates, and two impending, expensive wars.
The administration believed that pushing through another round of tax cuts, the Jobs and Growth Reconciliation Act of 2003, would give the economy the boost it needed to grow its way out of any fi nancial diffi culties.
The second round of tax cuts were, by and large, opposed by economists — Bush ’ s own economic advisory board included.
In fact, in February 2003, approximately 450 economists, including 10 Nobel Prize laureates, signed a statement oppos-ing the Bush tax cuts. This petition of sorts urged the president not to enact the proposed tax plan as it would not only hurt the economy in the near term but deepen defi cits down the line.
The statement, released by the Economic Policy Institute, was printed as a full - page ad in the New York Times on February 11, 2003 and read as follows:
The tax cut plan proposed by President Bush is not the answer to these problems. Regardless of how one views the specifi cs of the Bush plan, there is wide agreement that its purpose is a permanent change in the tax structure and not the creation of jobs and growth in the near term. The permanent dividend tax cut, in particular, is not credible as a short - term stimulus. As tax reform, the dividend tax cut is misdirected in that it targets individuals rather than corporations, is overly complex, and could be, but is not, part of a revenue - neutral tax reform effort.
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78 The
Mission
Passing these tax cuts will worsen the long - term budget outlook, adding to the nation ’ s projected chronic defi cits.
This fi scal deterioration will reduce the capacity of the government to fi nance Social Security and Medicare benefi ts as well as investments in schools, health, infrastructure, and basic research. Moreover, the proposed tax cuts will generate further inequalities in after - tax income.
To be effective, a stimulus plan should rely on immediate but temporary spending and tax measures to expand demand, and it should also rely on immediate but temporary incentives for investment. Such a stimulus plan would spur growth and jobs in the short term without exacerbating the long - term budget outlook.
In the end, the legislation was pushed through on May 23, 2003, by a tie - breaking vote from Vice President Dick Cheney.
What