Taxes & Spending

Kerry May Be Biggest Threat To the U.S. Economy

The biggest threat to the U.S. economy today may be Democratic presidential nominee John Kerry. The centerpiece of Kerry’s economic program is to repeal the Bush tax cut for those earning more than $200,000. Let us put aside for a moment the improbability that John Kerry and his running mate John Edwards would only “raise taxes on the rich.† That was Bill Clinton’s claim in 1992 and we all got soaked. But even if Kerry is true to his word, his plan would almost certainly short circuit the economic rally that has been well under way for more than a year now. The Kerry tax-hike plan would mean a higher capital gains tax, a higher dividend tax rate, and a hike in the highest income tax rate to 40%. Not This JFK Kerry seems to believe the witless notion that if you raise taxes on investment, work, savings, and business creation, you magically will get more of these things. Well, President Bush, following in the footsteps of such famous tax cutting presidents as Ronald Reagan, John F. Kennedy, and Calvin Coolidge, understands that just the opposite is true: tax cuts create incentives for economic-growth enhancing activities. When you tax something, you get less of it, when you tax something less, you get more of it, as the adage goes. This is not just a theoretical economic equation drawn on a chalkboard in a university lecture hall. Bush has the facts on his side. The economy has grown at a 5% clip since the dividend and capital-gains tax cuts were implemented. That compares with barely 2% growth in Europe. The number of jobs has also climbed by almost 1 million in the wake of the tax cut. But here is what is most surprising and impressive of all and what exposes the folly of Kerry-nomics. Kerry would repeal the tax cut even though it has led to more tax revenues, not less. The latest federal budget projections show that the Bush tax cuts have been far more effective than even the White House originally expected. The latest data from OMB show the 2004 budget deficit shrinking from a projected $521 billion, 4.5% of GDP, to only $445 billion, 3.8% of GDP. This huge improvement is due entirely to a surge in federal tax revenues. To get a handle on numbers that big, for an average family of four, their share of the 2004 deficit will be more than $1,000 smaller than originally projected. What happened? Individual income tax receipts are up this year for the first time since 2000. They were expected to continue to slide as recently as February, but stronger than expected economic growth, prompted by last year’s tax cuts, has caused the surge. Amazingly, the 2003 tax cut has reversed 3 previous years of declining tax receipts. John Kerry needs to be introduced to a concept known as the Laffer Curve. The Laffer Curve, named after the famous economist Arthur Laffer, demonstrates that high tax rates can actually so impede economic growth that they lead to less revenues for the government. And the converse is also true: lowering tax rates can unleash economic potential and make revenues soar. Liberals have always sniffed at this idea because Reagan embraced it, but history is on Laffer’s side. In the 1980s, federal tax receipts doubled even as Reagan was cutting the highest tax rate from 70% down to 28%. Those tax rate reductions put 15 million more Americans back into jobs…quot;and people with jobs stop collecting welfare and start paying taxes! Kerry might have learned this lesson from Bill Clinton. In 1997, the Republican Congress passed a capital gains tax cut and Clinton (reluctantly) signed it into law. Over the next three years capital gains tax collections doubled. The 2003 Bush tax cuts have also stimulated an expansion that began almost the moment the tax cut was enacted. Jon Kyl, the Senator from Arizona, wants to make the Bush tax cuts permanent, rather than repeal them. He notes that tax receipts this year will be at least $50 billion higher than expected. “The capital gains and dividend tax cuts have fueled this economic boom,† says Mr. Kyl. “It would be foolhardy to repeal them.† Kerry, on the other hand, says that the tax cut must be repealed to help balance the budget. He intends to cut the budget deficit in half in four years. But the Tax Foundation recently issued a report that raises the question whether Kerry was taught basic arithmetic in those elite East Coast prep schools he attended. According to the Tax Foundation, even repealing all the Bush tax cuts for upper income Americans would cut the budget deficit only by a scant 10%. Kerry Agenda Would Hike Deficit Kerry’s overall wobbly economic platform would actually make the budget deficit a lot worse. Why? Because his spending plans would add an estimated $2 trillion to the national debt over 10 years as revealed in a new National Taxpayers Union release. So Kerry is playing with monopoly money. For every dime he cuts the budget deficit, he borrows another dollar. This is anti-progress on the jobs front and the deficit reduction front. Kerry accuses George Bush of Herbert Hoover economics, but it is Kerry who would put our bullish financial expansion at risk. Tax increases are to an economic recovery what a 6-4-3 double play ball is to a 9th inning rally. The Kerry Democrats say that Bill Clinton’s record tax hike caused the prosperity of the 1990s. Wrong. The first two Clinton years saw a reduction in economic growth. It wasn’t until after the election of 1994 and a new Republican Congress that the gale force winds of growth sailed the nation forward. John Kerry seems to want to emulate the European model of growth. Problem is there is almost no growth in Euro-land. Germany and France are battling 9% unemployment rates and economic growth rates that can be detected only by a high-powered microscope. Perhaps Kerry is running for President of the wrong nation.

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