Plan helps everyone, so let’s not make it a class battle
BY TERRY SAVAGE SUN-TIMES COLUMNIST Jul 14, 2006
Updated: May 3, 2013 12:14PM
Originally published: January 9, 2003
Let’s not turn the tax debate into class warfare. Or political warfare. The economy is too important. History makes it clear that tax cuts--across the board-- do work to get the economy going.
President John F. Kennedy proposed huge tax cuts to the American people in the early 1960s, and after his death, Congress cut the top tax rate from 91 percent to 70 percent, and the corporate tax rate from 52 percent to 48 percent. The Kennedy tax cuts started at the top and went across all income levels. President Kennedy wasn’t deterred by sneers that his tax cuts favored the rich. His famous comment: “A rising tide lifts all boats.”
President Ronald Reagan cut taxes across the board as well in the 1980s. The top tax dropped to 28 percent from 70 percent during the decade. Yes, the budget deficit soared as defense spending also increased. But even as the deficit increased, interest rates plummeted from a 20 percent prime rate down to single digits.
In fact, in hindsight it’s clear that delays in implementing those tax cuts, which were spread out over three years, delayed receipts of tax revenues generated by the increase in business activity and corporate profits. Ultimately in the 1980s, in spite of the huge tax cuts, overall tax revenues doubled.
And after each of these tax cuts, the economy moved from recession to growth.
A non-partisan lesson
Let’s learn from history. In the last 50 years, we’ve had two examples--one led by a Democrat president and the other a Republican--of how tax cuts can spur economic growth and prosperity. And each of those tax cuts started at the top tax brackets--the wealthy--and included provisions for the lowest-income workers, as well.
In the long run, a growing economy is the best job program of all. We saw that happen in the 1990s. You don’t have to be an economist to understand that logic. Lower taxes, higher stock prices and a growing economy appeal to everyone.
Why would any politician or member of the media try to divide the country along political or economic lines when we have such clear lessons from the recent past?
Let’s hope Congress doesn’t take months to haggle while the economy slows, jobs are lost and both personal and corporate bankruptcies rise. Let’s hope the media pundits don’t opt for ratings success by stoking a controversy between the wealthy and the struggling.
Sure, there’s room for discussion. But the program presented by President Bush Tuesday was crafted to provide something for everyone.
Workers:If you get a paycheck, you would get a tax cut. Immediately. (As soon as the law is passed.) And it would be retroactive to Jan. 1 under the proposal. That’s immediate money in every worker’s pocket.
Unemployed: Jobless benefits are extended. Plus, the federal government sends $3.6 billion back to the states to fund personal unemployment accounts of $3,000 for each unemployed worker. The money can be used for job-search expenses, or simply to tide the family over until a growing economy provides job opportunities. And it keeps the money in the hands of the unemployed instead of within the grasp of state bureaucrats.
Families: Each child would be worth a $1,000 credit on a family’s tax return, up from the current $600. Lower-income families who pay little in taxes could actually receive a check for a portion of the credit.
Seniors (and the well off): Sure, it’s primarily higher-income filers who own stocks outside their retirement accounts and receive dividends. But who could complain if the ending of double taxation of dividends made stocks once again so attractive that a rising Dow Jones industrial average made headlines? Wouldn’t we all feel better in a bull market? Didn’t we?
Other benefits: There’s a little bit extra, as well. Millions more workers will find themselves in the lowest 10 percent bracket. The end of the “death tax” becomes permanent, allowing people to stop wasting money on estate-tax planning and extra life insurance to pay death taxes. And ending the marriage tax penalty stops discouraging romance!
So don’t pit one American against another, one generation against another, and let’s recognize we’re all in the same boat.
Anything that turns the tide in our favor, and lifts all our boats, is cause to celebrate. The tax proposals do that. And that’s The Savage Truth.
Terry Savage is a registered investment adviser and is on the board of directors of McDonald’s Corp. She appears weekly on WMAQ-Channel 5’s 4:30 p.m. newscast.