Former Clinton Treasury Secretary Robert Rubin, writing in the New York Times recently, makes the case for fiscal austerity when he insists taxes must be raised or deficits will cause the economy to crumble. Using static revenue estimates from the congressional Joint Committee on Taxation, which ignore the effect of tax rates on economic growth, the left claims the Bush tax cuts will "cost" the federal government $2 trillion during the next decade, and deficits will soar. Few serious economists believe raising tax rates on work, saving and investment will strengthen the economy. What Rubin and his colleagues on the left leave out of the equation is the fact that if the economy doesn't grow - and it won't grow if we repeal the Bush tax cuts - the deficit will only get bigger.
President George W. Bush in 2003 signed into law the Jobs and Growth Tax Relief Act aimed at restoring the economy to health after having suffered through three years of recession and sluggish recovery caused, in large part, by the Fed's deflationary monetary policy and high tax rates. The Bush tax cuts of 2003, among other things, reduced the tax rates on capital gains and dividends to 15 percent, accelerated scheduled reductions in individual income tax rates and increased the amount of capital investment that small businesses could write off ("expense") in the year in which they made investments as well as providing "bonus" depreciation for all businesses to invest in equipment and leasehold improvements.
After growing at a meager average quarterly rate of 1.4 percent a year since the third quarter of 2000, the economy took off subsequent to the Bush tax cuts and has averaged annually adjusted growth of more than 4 percent since then. There is no doubt the Bush tax cuts worked as advertised to restore the U.S. economy to health.
Rather than repealing them, Congress should get about the business of reforming the tax code by adopting something along the lines of what Steve Forbes recommends - giving everyone five years to choose between filing returns under a 20-percent flat tax or under the current tax code, after which the current code would be repealed altogether. Wow! What a prospect for the American people.
By slashing the tax on corporate dividends, Bush focused squarely on the task of forming new capital by raising shareholder value and boosting the stock market. The result: the Dow has jumped about 2000 points, or 22 percent, over the past two years, and the tech-heavy NASDAQ has gained more than 35 percent. And the tax cuts did more than breathe life back into stock markets.