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Floating everybody’s boat

Posted by Richard on July 26, 2006

A couple of weeks ago, I demolished (IMHO) a NYTimes editorial bad-mouthing the economy. In that post, I argued that the Bush tax cuts performed exactly as supply-siders had predicted they would, and that the result was great for the economy. Tuesday, in an OpinionJournal column, Pete du Pont echoed much of what I’d said.

Du Pont began by noting that the Democratic Party has changed a lot since JFK said, "an economy hampered by restrictive tax rates will never produce enough revenue to balance our budget, just as it will never produce enough jobs or enough profits," and 80% of Congressional Democrats voted for the Kennedy tax cuts:

Opposing tax cuts has become the mantra of the liberal left. Sen. John Kerry wants to roll back Bush’s "unaffordable tax cuts." Senator Mark Dayton (D., Minn.) called the cuts "dangerous and destructive and dishonorable." Bill Clinton in 2003 said the cuts were "way too big to avoid serious harm." And various New York Times editorials called them "economically unsound," claimed that "they will increase the deficit by hundreds of billions of dollars" and said they were unlikely "to stimulate the wallowing economy." Earlier this month House Minority Leader Nancy Pelosi promised that the election of a Democratic House in November would result in a "rollback of the tax cuts."

Of course they have it backwards. President Bush’s personal income, capital gains and dividend tax rate reductions have created economic growth, significantly increased government tax receipts, and reduced the federal deficit by nearly $130 billion.

Du Pont credited Larry Kudlow with pointing out that the U.S. economic growth of 20% — $2.2 trillion — in the past 3 years was the equivalent of adding a whole new China. I noted that factoid in my post Saturday about Nicholas Vardy’s observations regarding U.S. economic performance — six of the ten fastest-growing economies in the world are U.S. states.

DuPont poured out a plethora of positive economic statistics:

In the 2 1/4 years before the 2003 tax cuts, economic growth averaged 1.1% annually; in the three years since it has averaged 4% per year, and in the first quarter of this year it was 5.6% on an annualized basis. Inflation-adjusted per capita GDP has grown 7.8% from 2003 through the first quarter of this year.

According to the government’s establishment survey, in the 36 months since the tax cuts became law, 5.3 million new jobs have been added to the economy. … The unemployment rate dropped from 6.1% when the bills were signed to 5.4% at the end of 2004 and 4.6% today, and the rate has gone down for men, women, blacks and Hispanics. Hourly wage rates for workers are up 3.9% in the past year, and they increased at an annualized rate of 4.6% in the second quarter of this year, the highest quarterly rate in nearly 10 years.

Incomes are up too. As Stephen Moore noted in The Wall Street Journal, "the percentage of Americans earning more than $50,000 a year rose from 40.8% to 44.2%" between 2002 and 2004. As for very wealthy families, the portion of total income "captured by the richest 1%, 5% and 10% of Americans is lower today than in the last year of the Clinton administration."

All this has been good news for the government. Federal tax receipts increased by 15%– $274 billion–last year and 13%– $206 billion–in the first nine months of this fiscal year, which, as the Journal points out, means the nine-month increases for the past two years represent the highest growth rates in 25 years. …

Reducing the capital gains tax rate from 20% to 15% increased capital gains tax receipts by 79% from 2000 to 2004. Cutting the dividend tax rate by more than half–from 39.6% to 15%–increased dividend tax receipts by 35% from 2002 to 2004. And corporate tax receipts have nearly tripled since 2003, reaching $250 billion for the past nine months, 26% higher than the same period last year.

Du Pont’s conclusion? The same as mine:

Tax cuts work, and work well, for individuals, employers and even the government, which sees its revenues increase dramatically when tax cuts are enacted and left in place over time.

Being fair, however, du Pont noted that the Bush administration — and especially the Republican Congress — deserve criticism as well as praise:

The other side of the coin is the government spending rate, for it has grown by more than $800 billion–nearly 50%–during the Bush administration. Excluding war and homeland security expenditures, it has grown about 7% a year, and virtually nothing has been done to stem it.

A veto or two by the president would help, and so would some spine in the Republican House and Senate. A recent National Taxpayers Union Foundation study found that in 2005 the average Republican House member voted to increase discretionary spending by $168 billion, close to the average Democrat’s $178 billion. Republicans senators’ votes averaged $183 billion in new spending; Democratic senators $217 billion. Compare these numbers to the golden days of the Gingrich leadership: In 1997 the average House member voted to reduce spending by $6 billion while the average senator’s increase was only $4 billion. 

That’s an astonishing change for the worse among Congressional Republicans.

I think the Democrats are partly to blame, though. If they hadn’t gone so moonbatty and untrustworthy on the critical issue of national security, the Republicans wouldn’t have defied history with congressional gains in 2002. It was their smashing success in those off-year elections that made Republicans smug and arrogant. They subsequently abandoned most of the reforms of 1994, and they moved sharply left-ward on fiscal matters. They assumed that the fiscally conservative part of the base would be more afraid of Democrats than angry at Republicans.

Damn, I wish we had a responsible opposition party.

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