Re: Will the Tax Cut Work?

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

About a year ago, President Bush took office. Last spring, he and congressional
Republicans began pushing for a $1.4 trillion dollar tax cut. Most of the
benefit went to the wealthiest Americans, far more than the percentage
of taxes they pay. The Republicans said their plan would still produce
budget surpluses for the next 10 years.

Democrats offered a different economic plan, one based on our earlier experience.  Its corner posts were fiscal responsibility, investments in people and businesses to spur economic growth, and tax cuts aimed at working families.

But the Republican plan was enacted. Now, just a few short months later, our economy is in trouble. Budget surpluses have turned to budget deficits once again.

Some Republicans in Congress say that the September 11 attacks caused the economic downturn. No question the terrorist attacks hurt our economy. But, the fact is, our economy was headed for trouble months before September 11.

What America needs now is a "responsible" economic recovery plan. Yet, the Republicans still insist that we order from the same old menu. They are proposing more tax cuts, mostly for the affluent and big corporations. They will end up paying for their tax cut with money from the Social Security trust funds, and by increasing federal debt.  That doesn't make sense. We've tried that before and it doesn't work.

We have a better plan.

Senate Majority Leader Tom Daschle and Democrats in Congress are working for targeted tax cuts for working families to stimulate consumer demand; investments in  people to spur economic growth, new jobs and opportunity; and budgets that are fiscally responsible and that still protect Social Security and Medicare.

Our plan also helps those who have lost their job during this economic downturn.  That's not only the "right" thing to do. Economists say it will help the economy recover.  But the Republicans are resisting that too.

You know, back during the Great Depression, Will Rogers said something that pretty well describes the current Republican approach. He said "the unemployed here ain't  eating regular, but we will get around to them as soon as we get everybody else fixed up O.K."

Our country can do better than that.

Here in farm states, we especially understand the need for economic recovery. And we know that giving family farmers a chance to survive -- by writing a new farm program that really works -- is also an important part of what's needed for a better economy. Yet, Republicans in the Senate have even stopped a new farm bill with a filibuster. But we're not going to give up in our fight to help America's farm families.

Now, I'm not trying to tell you we're all right and they're all wrong. That's not the case. But, we are all Americans and we need some cooperation here in Congress to do the right thing for our country's future.

I began by telling you how strongly we support the President as he prosecutes the war against terrorists. We're going to continue that strong support. It's the right thing to do. But in these tough times, the American people need some support, too. We want the President and Republicans in Congress to help us enact an economic recovery package that gives America's economy a boost and America's working people a fair shake. That's the right thing to do as well.

This is Senator Byron Dorgan of North Dakota. Thanks for listening."

Senate Majority Leader Thomas A. Daschle (D-S.D.), a possible presidential candidate, delivered a speech in which he charged Bush's tax cuts "probably made the recession worse." Some Democrats, but not Daschle, have proposed delaying or rolling back parts of the $1.35 trillion tax cut that have not taken effect to avoid or reduce deficit spending.

Senate Majority Leader Thomas A. Daschle (D-S.D.) today kicked off a Democratic effort to tie President Bush's economic policies to the return of budget deficits.

Daschle, the highest-ranking elected Democrat and a potential presidential candidate, outlined a seven-point economic plan with several new spending initiatives and challenged the president to "restore long-term fiscal integrity to our budget."

While praising Bush for his administration's work "in the battle on terrorism," Daschle said "when it comes to our second battle, our economic battle, I think most Americans would probably agree that the news hasn't been so good lately. . . . If we can root out a network of terrorists half a world away, we can solve the problems in our own economy, too."

Daschle's speech at the Center for National Policy headquarters in Washington comes a day before Bush goes to California for a town meeting on the economy. After tomorrow's meeting, Bush will meet with business leaders in Portland, Ore., before returning to the White House from his vacation in Crawford, Tex. In the coming month, Bush will focus intently on the economy as he prepared to give his first State of the Union address and unveil his first wartime budget.

Daschle signaled that Democrats plan to link many of the current economic troubles to the administration's policies. Many Democrats opposed the president's $1.35 trillion tax cut, and they argue that it was especially irresponsible in light of the spending demands triggered by the war on terrorism.

"The tax cut failed to prevent a recession; it probably made the recession worse," Daschle said, adding that the tax cut has put the government in the position of making unpalatable choices. "We can shortchange critical needs such as homeland defense or raid the Social Security surplus. We should not be in that position," the senator said.

Daschle did not openly call for repealing parts of the tax cut. Instead, he resurrected Bill Clinton's argument that budget surpluses help keep long-term interest rates low, reducing the cost of home mortgages and credit card debt.

"Low interest rates are the best possible tax cut," Daschle said, arguing that the Federal Reserve's cuts in short-term rates alone will not do the job if "our long-term budget outlook remains so precarious. The federal government needs to show the markets that it has not abandoned fiscal discipline but is still committed to it."

Administration officials maintain that the tax cut sets the stage for greater economic growth. They have been openly skeptical of the idea that budget surpluses or deficits have much impact on interest rate fluctuations.

Daschle also announced a series of initiatives, including a retooled Democratic stimulus plan. One new proposal would temporarily allow companies to reduce the burden of payroll taxes that result from hiring new employees. The plan would also allow companies to write off 40 percent of new investments for six months and then 20 percent for the next six months, compared with the administration's plan to allow write-offs of 30 percent a year for three years.

"If you want to know whether this will work, just look at what's happened with car sales these last three months. When consumers were told that they'd be able to purchase a car with zero percent interest rates, they shelved their financial uncertainty and purchased cars in record numbers. We want businesses to do the same thing when it comes to purchasing new equipment and new technology," he said.

Daschle called his stimulus plan a "short-term recovery package." He contends that the president's plan contains too many long-term provisions that will undermine budget discipline. White House aides said the president will rename his package an "economic security" plan as part of a renewed effort to build public support for the package that failed to pass Congress last year.

Daschle also pushed for free trade, linking it to expanded assistance for workers affected by trade deals. For example, he proposed wage insurance to restore part of the income lost by workers over age 50. Daschle also rejected the recommendations of the Bush Social Security Commission and instead support private accounts only as a supplement, not a replacement, for the current retirement system.

Daschle's plan drew quick response--not praise--from Republicans.

"Perhaps the most important thing the Congress did last year to promote economic security was to pass the president's tax relief proposal," said House Speaker Dennis Hastert, R-Ill. "Senator Daschle voted against that proposal and now he seems to indicate that he wants to repeal it," Hastert added, saying that would be "exactly the wrong way to achieve long term economic security."
 

President Bush plans to tout his economic stimulus plan in a California town-hall meeting today, arguing it is critical to reviving the economy. But the nonpartisan Congressional Budget Office gave poor grades to several of the president's proposals in a report issued yesterday.

The report said several Democratic proposals had a better chance of reviving the economy at the lowest cost. It reserved its highest praise for a "payroll tax holiday" advocated by Sen. Pete V. Domenici (R-N.M.). The administration has been cool to Domenici's plan, but Senate Democrats were open to it during the inconclusive negotiations on a stimulus bill last month.

The stimulus bill stalled in Congress before the holidays, when Democrats and Republicans split sharply on the best mix of tax cuts to bolster the economy. The CBO report evaluated several tax options -- including all four advocated by the president -- for their potential impact over the next year. It did not study proposals to help the unemployed, also a source of tension between the two parties.

Democrats were gleeful over the analysis. "The report ought to provide some helpful guidance to Republicans," said Ranit Schmelzer, spokeswoman for Senate Majority Leader Thomas A. Daschle (D-S.D.). "We hope they take the time to study it and modify their plan accordingly."

But administration officials professed to be unimpressed. "It appears to be a narrow report that fails to take into account the benefits of the economic security plan we put forth," said White House spokeswoman Claire Buchan, citing an administration projection that the president's plan would generate 300,000 jobs. She said that the report did not evaluate long-term benefits and that the president's plan is designed to "help not only in the short term but in the long term."

Of the presidential proposals, the CBO said that two pushed also by Democrats -- tax rebates for people who didn't qualify for last year's tax cut and faster write-offs of business investments -- would have some stimulative effect. But they would be less cost-effective than the proposed holidays from payroll taxes or sales taxes, the report said.

The CBO appeared to side with Democrats on whether the business investment incentives should be limited to one year, compared with the three years sought by the administration. "A longer period would give a bigger average yearly boost, but more of it would come at the end of the period than at the beginning, delaying the stimulative effect," the report said.

Two of the administration's main priorities -- accelerating planned cuts in individual tax rates and repealing the corporate minimum tax -- were rated by the CBO as offering little "bang for the buck." In fact, the CBO said the proposals "would have little prospect of generating first-year stimulus that exceeded the revenue forgone."

Accelerating cuts in higher tax brackets would affect only the top 30 percent of taxpayers, the CBO said, while lower-income households would tend to spend more in response to lower taxes. The CBO also said the option is not cost-effective because most of the revenue loss would take place between 2003 and 2006, after the recession will probably have ended.

Repeal of the corporate minimum tax also fared poorly in the CBO analysis. The report noted that only about 0.5 percent of corporate taxpayers pay the tax, which was enacted to make sure no corporation could avoid paying taxes through deductions and other tax-avoidance methods. Moreover, the CBO said that eliminating the corporate minimum tax "does little by itself to change the near-term incentive for businesses to invest."

Daschle yesterday also took aim at Bush's tax cut and blamed the president for a national loss of the budget surplus. "The Republican agenda in Washington today is being written by a wing of the Republican Party that isn't interested in fiscal discipline," Daschle said. "They have one unchanging, unyielding solution that they offer for every problem: tax cuts that go disproportionately to the most affluent."
 

Helmet4000@xxxxxxx wrote:

Dear List,

What does everyone think of Bush's tax cut? Will it work? Will it hurt us?

Tom