NCPA - National Center for Policy Analysis

The Case For A Tax Cut

September 25, 2002

Some congressional Republicans want President Bush to scale back his tax cut plan, but tax cut proponents warn that the critics are wrong in their fears that tax cuts will drive up long-term interest rates. They say history proves tax cuts have tended to correspond with lower long-term interest rates, not higher ones.

  • President Reagan's tax cuts helped cause interest rates to fall from 15 percent in 1980 to half that level by 1989.
  • Critics who complained that Bush's first tax-cut package would cause interest rates to rise have seen them fall to their lowest levels in decades.
  • The $160 billion budget deficit is a concern, but the rise in the debt is being driven by the absence of economic growth.
  • Tax revenues are flat because investors aren't investing, corporations are making profits and wages are stagnant.

Therefore, a more evenhanded approach to taxing dividends would be like delivering CPR to moribund markets, observers say. We should immediately cut the capital gains tax on all new investments, eliminate the double taxation of dividends and expand tax-free Individual Retirement Accounts (IRAs) to enlarge the pool of savings that entrepreneurs and venture capitalists can draw upon for job-creating new business ventures. The last capital gains cut in 1997, they point out, caused a huge burst of entrepreneurial activity and a surge in venture capital funding.

Source: Stephen Moore (Club for Growth), "Will Tax Cuts For Investors Be Victim Of Deficit Battle?" Investor's Business Daily, September 25, 2002.

 

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