Tax Cuts: Rhetoric v. Reality

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Tax Cuts: Rhetoric v. Reality

January 16, 2003 5 min read
Andy
Chief Advancement Officer
Andy is the Chief Advancement Officer at The Heritage Foundation.

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Just What the Economy Needs
President's plan is just what the economy needs, a commentary by Bill Beach, Director of Heritage's Center for Data Analysis.

Talking points: Americans want more freedom and opportunity

  1. President Bush's plan is a bold and visionary step that will make our nation stronger and improve the living standards of all Americans.
  2. The president's call to end double taxation of dividends is sure to give the stock market a boost and improve America's global competitiveness.
  3. There's no question a dividend tax cut would produce growth.
  4. Discarding one of these extra layers of taxation will encourage businesses to invest more, leading to more jobs and higher living standards.
  5. Removing the second tax on dividends will increase future income flow and therefore help the stock market, potentially boosting national wealth by nearly $1 trillion.
  6. Even Marxist economists recognize that investment is the key to long-run growth and rising wages.
  7. But this isn't just an economic issue: It's time the government stopped imposing penalties - or granting preferences - depending on how people get or spend their income.
  8. You don't help the poor by imposing high taxes on the rich. Such policies simply drive money form the U.S. economy and benefit our competitors.
  9. Critics claim the tax cuts will explode the deficit. As President Kennedy explained more than 40 years ago, the purpose of cutting taxes is not to incur a deficit, but to achieve the more prosperous, expanding economy that can bring a surplus.

For more see An Economic Plan That Adds Up by Dan Mitchell

Talking points: What Every American Wants

  1. A major tax cut will be a step toward smaller government.
  2. Government is too large and intrusive.
  3. Americans do not get their money's worth for the roughly 40% of income that is spent by government -- federal, state and local -- supposedly on their behalf, or the additional 10% or so of income that residents or businesses spend in response to government mandates and regulation.
  4. There is only one way to cut government down to size: the way parents control spendthrift children, cutting their allowance.
  5. For government, that means cutting taxes.
  6. Resulting deficits will be an effective -- the only effective -- restraint on the spending propensities of the executive branch and the legislature. The public reaction will make that restraint effective.
  7. First step: Make the already voted tax reductions permanent, bring their effective dates forward, and lower the rates further to improve the quality of the already enacted tax cuts.

For more see Milton Friedman's commentary, What Every American Wants, from Wednesday's Wall Street Journal. [ Subscription required].

Who Are the Rich?
The National Center for Policy Analysis breaks down a New York Times article examining who makes up the "rich" in America:

Some debaters base their definition on salaries -- and claim that any household making $100,000 a year is rich. Others ignore
salaries and base their definition on household assets.
Complicating the effort to define personal wealth is the question
of economic geography -- with $1 million going much further in
some areas of the country than in others.

What can't be denied is that the ranks of the well-off have
multiplied in recent years.
  • The fortunes of many families that were already rich have soared since 1980 -- as did the ranks of the newly
    wealthy, with the ranks of households making at least $1 million almost doubling to 4.8 million from the early
    1980s to the late 1990s, even after accounting for
    inflation.
  • Almost three million of the 130 million U.S. families
    filing tax returns in 2001 reported at least $200,000 of
    income -- up from 1.3 million in 1995.
  • Wealth in the United States remains concentrated in
    metropolitan and coastal areas -- but some rural enclaves and growing wealth in the Rocky Mountain states have somewhat altered that picture.
  • Some 13 percent of Americans consider themselves either rich or upper income -- while 59 percent say they are in the middle-income crowd, and 27 percent identify
    themselves as lower income or poor.

It took an income of only $83,500 in 2001 to place an American in the top-fifth, or quintile, of earners.

The source article: David Leonhardt's, " Defining the Rich in the World's Wealthiest Nation," New York Times, January 12, 2003.

Authors

Andy
Andrew Olivastro

Chief Advancement Officer

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