$318 Billion Deal Is Set in Congress for Cutting Taxes

NY TIMES EDITORIAL

The Republicans Party On
Against some of the best economic advice in the land, President Bush and his Republican Congressional leaders have concocted a benighted final tax-cut plan that will do far more to deepen the nation's deficits and debt than to stimulate the wallowing economy. In a rush for approval by Memorial Day, the leaders have cannibalized parts of competing packages into a tentative $318 billion grab bag that again offers the most significant relief to the upper-bracket Americans so dear to the administration. Dividend taxes will be cut, not eliminated as the president hoped, but so will capital gains taxes. The latter was a conservative chestnut rejected two years ago when the first Bush cuts were enacted in the long-ago euphoria of an actual budget surplus.

This time, with the budget hemorrhaging red ink, the G.O.P. takes care to include $20 billion in much needed fiscal relief for battered state and local budgets, whose problems can be traced in part to the first Bush cuts. And the leaders are wrapping their package in middle-class sweeteners like child-care credits and relief for married taxpayers. But those boons are cynically "sunsetted" to expire after three years to fit into fictitious limits of fiscal responsibility. In contrast, there is no such asterisk on the accelerated cut in all tax rates, including the most controversial drop in the top rate, to 35 percent from 38.6 percent — a windfall of scores of thousands of dollars annually for wealthy Americans.

This version of the president's "growth" plan will increase the deficit by hundreds of billions of dollars across the next decade. To help pay for it, the G.O.P. budget hawks of yore, born again now as deficit spenders of record proportions, will soon have to raise the national debt limit by almost a trillion dollars from the current $6.4 trillion. This is particularly urgent now that the current year's deficit is ballooning beyond estimates, toward $400 billion, with the two Bush tax cuts expected to add well over $2 trillion in deficits by 2013. "Deficits do matter," the Federal Reserve chairman, Alan Greenspan, warned Congress, sounding like a Dickensian wraith ominously foreseeing a future of red-ink borrowing and rising interest rates. But the Republicans appear set to party on now and roll the tab over the far horizon.

It seems the majority of Americans just don't get it! Even Warren Buffet said a exemption on dividends will not help the economy, because the wealthy will not spend that money, but just reinvest it. He said the tax break needs to go to the poor, because they're the ones who will spend their tax breaks to stimulate the economy. And I whole-hearted agree. c.i.

A different logic suggests it may be useful. That is, by encouraging investment, we increase industrial capital, which is the means of production. A reduction in taxes on dividends, and capital gains for that matter, should influence future decisions. A bigger tax refund to the poor will not.

I don't begin to predict the effects of this legislation; just considering possibilities.

roger, It's useless to increase industrial capital when more and more people get laid off from their jobs. Those industrial capital will sit empty. Can't you see it today? More companies are laying off people by the thousands...... Why would companies build more plants? c.i.

as far as i am concerned all economics is voodo economics

To that, c.i., this is a capital intensive economy, not labor intensive. Needless to say, there has to be somebody out there able to buy the products of that capital.

I hear that, dys. Economists have much in common with psychologists. They make great observers, and are really good at explaining what happened. Neither seem especially brilliant when it comes to making predictions.

Greenspan the American guru of economics has it down pat. He is the master of double talk. His appearances before congress are notable. He talks and the congress people appear to understand. However, I always have the feeling that they are befuddled but are afraid to ask to many questions for fear of appearing ignorant.

when i was in grad school i was forced to take a course of Macro-Economics, so one day i asked the prof to explain both the Stock Market and the Commodities Market. He answered that its a crap shoot with loaded dice. best explanation i ever heard of "Economics"

And I was told that a degree in economics might not keep you out of the bread line, but at least you would be able to explain why you were there. I believe that was attributed to Samuelson at UOC.

What effect will the tax free dividends have upon the municipal bond market?

roger, You answered your own question. Your quote: "there has to be somebody out there able to buy the products of that capital." And the way you do that is to favor the poor and middle class for tax breaks - not the rich. They can already buy everything they need. The poor and middle class, on the other hand, will spend the money. c.i.

The rates will decrease; it's called supply and demand. Those getting tax free dividends will reinvest it in equities and bonds. Equities are already over-bought; the p/e ratios are too high. Earnings per share decreases with more money in the market. c.i.

Such restraint is shown in not mentioning that there's a war to pay for...

patiodog, That's called 'hawking the future generation.' Bush is very good at that. c.i.

NEWS ANALYSIS

A Tax Cut Without End

By DAVID E. ROSENBAUM

WASHINGTON, Friday, May 23 — True, the price tag on the tax bill the House approved this morning is officially only $320 billion over 10 years, barely two-fifths of the $726 billion President Bush proposed in February.
True too, it is even smaller than the $350 billion measure initially passed by the Senate that Mr. Bush ridiculed as "little bitty."

But the $320 billion figure, which is expected to clear the Senate today, is artificial.

Subterfuge, duplicity and a congressional view of honesty. Who said you can't fool all of the people all of the time?

http://www.nytimes.com/2003/05/23/national/23ASSE.html?th

au, You've got that right! Subterfuge has always been the congress's archili's(sp) heel; tax cuts are rarely temporary. c.i.

ci:

I hope you've noticed the marked improvement in the market.

I saw a Democrat on CNN yesterday saying that anyone who reports dividends is rich and shouldn't get any tax relief. I swear he said this.

Now, is everyone out there living from paycheck to paycheck and is all your savings safely stuffed into your mattress? Please, do tell.

Savings? Savings?!