07.01.2008 0

The Sinking City

  • On: 07/29/2008 16:25:25
  • In: Taxes
  • In antiquity, before a city was to be built, Roman surveyors would come to the site to make certain that the foundations for the city would be sound, that an adequate water supply was nearby, and generally speaking, that the city could survive for generations to come.

    And so it is with the U.S. economy. In order to grow and prosper, businesses need to be certain that they are on solid ground when it comes to current and future taxation. They need to be certain that tax rates today will not preclude reinvestment. And they need to be as certain as possible that future tax rates will not devour the fruits of their labor. In short, before they build they need to be certain that they’re not on sinking sand.

    Seeing that wisdom, John McCain (R-AZ) has proposed over $550 billion in tax cuts by 2012 as President Bush’s tax cuts are set to expire. Though, admittedly, he once opposed those tax cuts, he now supports making them permanent. He also would eliminate the alternative minimum tax and would slash the corporate tax rate from 35 to 25 percent. Senator McCain clearly understands that in times of economic downturn, you do not raise taxes. Period.

    Of course, the naysayers at the Washington Post want the old McCain back. Despite the fact that lower tax rates spur economic growth, which bolsters tax revenues, the Post’s Ruth Marcus is sticking to the well-refuted talking point that tax cuts lead to budget deficits:

    “In the space of just a few years, McCain has morphed from someone who worried about the cost of the Bush tax cuts into a rabid tax-cutter. You don’t need a fancy equation to explain this turnabout. McCain is running for president at the helm of a party that’s deathly allergic to taxes and highly suspicious of him on this score. His campaign-trail buddy is Phil Gramm, the former Texas senator. When it comes to fiscal responsibility versus more tax cuts, Gramm is what your mother would call a bad influence.”

    Notwithstanding Ms. Marcus’ antipathy to the Bush tax cuts and McCain’s current proposals, revenues to the Federal government rose from 2003 onward (after a recession and the attacks of September 11th) and are expected to continue to rise if the President’s tax cuts become permanent.

    In addition, the President’s tax cuts came at a critical time, which enabled the economy to recover more rapidly than it would have, according to the National Review’s Peter Wehner:

    “President Bush’s tax cuts — in the short term at least — did contribute to a larger deficit. But on the other side of the ledger, tax cuts were precisely what were needed to jump-start a sluggish economy. They were well-conceived, well-timed, and led to a growing economy, the creation of more than eight million new jobs, and a dramatic, even unprecedented, increase in revenues. This helped cut the deficit to 1.2 percent of the GDP in FY07. (The FY08 deficit, which is projected to be 2.9 percent of the GDP, is the result of slower growth in the economy and the stimulus package recently passed by Congress and signed into law by the president.) That deficit will still be below or equal to deficits during the 1980s and 1990s — and by way of comparison, the deficit under President Reagan reached 6.0 percent of the GDP and 4.7 percent under President George H. W. Bush.

    “If President Bush’s tax cuts had not been enacted into law, the economy during the last seven years would have been weaker, growth would have been slower, and therefore the deficit may well have been larger.”

    Perhaps it is based upon the empirical evidence that McCain now supports making the President’s tax cuts permanent – and, in fact, compels him to propose cutting them another $374 billion over the next four years. As to the criticism of McCain for adapting to the obvious, one might recall the words of Ralph Waldo Emerson, “A foolish consistency is the hobgoblin of little minds.” (Ms. Marcus, please take note.)

    Perhaps McCain wants to make certain that America remains a shining city on a hill – instead of a country sinking ever-deeper into the tax-induced Slough of Despond.

    ALG Perspective: Though Senator McCain was wrong to oppose the Bush tax cuts in the past, he is right to have changed his mind in support of making them permanent. Either of his potential opponents in the fall election, on the other hand, have made it clear that the tax burden on the average American will increase exponentially should either be allowed to push their proposals through what will likely be a complicit House and a liberal-controlled Senate.

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