Keep The Cuts

There is a wonderful article in the Wall Street Journal, making the case I have said that the Bush tax cuts are important for the economy.

Check it out.

Some important points:

The economy has created four million new jobs and pushed the unemployment rate to four-year lows. The once-ailing stock market has staged a remarkable recovery, creating an additional $4 trillion in shareholder value.

Well, there goes the theory that many had originally, claiming the tax cuts would lead to massive unemployment... In fact, unemployment has dropped or been stable in almost every month over the last four years - a long streak which has rarely been done in this country.

IPOs, one measure of entrepreneurial activity, have quadrupled since 2002. In 2004, 113 companies decided to begin paying dividends, five times the previous annual average.

This is huge. This shows that companies are not only being successful, but they're being so successful - and not having to worry about paying large taxes - that they are able to give investors returns on their money. No longer do investors have to sell their stock to make money; now they can make money much as large owners do - through ownership. Those dividend dollars add up (dividends are what spurred my own mutual fund to massive gains over the dozen years I owned them).

Perhaps the most important point is this one:

Lower capital gains and dividend tax rates have not drained the federal treasury either. Tax revenues overall have surged by 14.6% in FY 2005, reducing the federal budget deficit by nearly $100 billion.

This completely debunks the claims that the cuts are taking away the ability of this country to pay for programs or any other issue. There are many that try to assert that the tax cuts are "hurting the poor" - presumably, that would be because the government cannot afford to pay for the programs which help them. Yet, if tax revenues are up, that is obviously and completely false. The tax rates are not the important measure, or even a measure at all - the tax revenues are.

More interesting points:

Americans across all levels of household income have benefited from these lower rates. Nearly 60% of those paying capital gains taxes earn less than $50,000 a year, and 85% of capital gains taxpayers earn less than $100,000, according to Congress's Joint Economic Committee. This past April, the Treasury Department estimated that the lower rates on savings and investment benefited 24 million families by an average of almost $950 on their 2004 taxes, including seven million seniors whose savings averaged more than $1,231.

A very Democratic couple I know made an interesting point to me a couple years ago. They asserted that fiscally, most people are conservative; it's the social issues that swing them the other way, and possibly disagreements on foreign policy/national security. I'm not sure that this is true - yet. I do think that it is becoming more and more true. Many Democrats, particularly minorities, are social conservatives but fiscal liberals. This is because they have been repeatedly told that liberal economic policies serve them better than conservative ones. Now that President Bush's tax cuts have been firmly in place for a few years, and they are obviously successful - not only to CEO's and big businesses, but more so to small businesses and individuals on the cusp, that view is changing.

With the growth of small businesses, more and more people are getting hired - particularly minorities, who are finally able to showcase their own talents. They are doing so successfully, and earning good money because of it. This change is slowly leading to a realization that perhaps they have been misled all these years: Liberal economic policies do more to keep them in a class society where they are lower class; conservative policies remove the "class" concept completely, and assert that ability is what moves you up the economic ladder. The minorities have the ability - and they're moving up the ladder.

It will be interesting to see how this affects coming major elections. Republicans have realized that minorities, particularly the black and Hispanic communities, share social values with them. It is a matter of showing them that their fiscal concerns are best met with conservative policies. Actions speak louder than words. Republicans asserted this to be the case in 2000; 9% of blacks and 35% of Latinos voted for the President. They said it again in 2004, as the tax cuts seemed to be taking hold, and those numbers rose to 11% and 44%. Those who didn't graduate High School, presumably the ones who have the hardest time finding jobs, gave 49% support to Bush in '04 - up 10% from 2000.

The longer the tax cuts remain on the books, the more social conservatives who have leaned to the left will switch sides and vote Republican. It is becoming increasingly difficult for Democrats to make the case that the tax cuts are "only helping the rich" and "hurting the poor", when it's demonstrably false. We'll have to wait for '06, or maybe even '08, to see what happens - but it's not looking good for the Democratic Party.