Monday, September 04, 2006

Tax Cuts and Economic Growth

And here's the companion piece to the immigration issue, on the health of the economy. A rising tide does lift all boats. The Democrats are wrong about their record in the Clinton years and wrong about what works for the American economy.WSJ:
First, the new data show that the bottom 50% of Americans in income -- U.S. households with an income below the median of $44,389 -- paid a smaller share of total income taxes in 2004 (3.3%) than in Bill Clinton's last year in office (3.9%). That 3.3% is the lowest share of total income taxes paid by the bottom half of earners in at least 30 years, and probably ever. The majority of American families with an income below $40,000 pay no income tax at all today, and many of them also get a welfare subsidy from the Earned Income Tax Credit that effectively offsets much of what they pay in payroll taxes.

By contrast, Americans with an income in the top 1% paid 36.9% of all federal income taxes in 2004, down slightly from 37.4% at what was the height of the dot-com boom in 2000. But the top 5% and 10% of earners saw an increase in their tax share over that same period, with the top 5%'s share rising to 57.1% in 2004 from 56.5% in 2000. If this isn't the definition of a highly "progressive," aka redistributionist, tax code, we don't know what is.

Also, cuts in the capital gains tax rate resulted in higher revenues from high income earners and actually the rich got richer during the Clinton years.

Recently there's been some concern about a recession, but the latest numbers show a return to normal jobs growth and low unemployment. Larry Kudlow, RCP:

In a speech last week, Federal Reserve chair Ben Bernanke was bullish on the outlook for productivity, a vital economic stimulant. He cited rapid technological advances as a key driver in the new economy, noting that productivity gains have spread from information technology to other major sectors such as retail, financial services, and manufacturing -- all heavy users of technology......Despite all this, the economic Left is rebelling against the Bush prosperity. Along with articles in the New York Times and Washington Post, the Economic Policy Institute released a Labor Day study complaining that while productivity has increased 33 percent over ten years, real wages have declined since 2000.

But this neglects a broader measure called total compensation, which includes tax-free retirement and health benefits. Across the 2000-05 period, inflation-adjusted total compensation has increased 13.1 percent, and over ten years has advanced 31.8 percent, in line with the productivity rise. That's a bright picture.

The tax structure is plenty progressive. Tax cuts work, and are a winning issue for Republicans. And jobs and earnings are on the rise.

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