Any views on the Palumbo reserach quoted on TNR's article?

I also hope many people also wake to the fact that this Administration is also wrecking America's public finances BIG TIME. That doesn't sound very patriotic to me.

Well, in terms of stimulus for 2003, I think you are correct. But you are ignoring that the US taxes lie too heavily on the savings and too little on the consumption side, which has led to your private households over-leveraging themselves to the hilt (all that's keeping the buying up are the house prices). That's probably no news to you, but I believe that the Bush admin is probably taking a step in the right direction with this package, in terms of getting productivity growth on the right track through un-inhibiting the accumulation of capital, thereby helping long term growth.

What the democracts are mad at is thus misplaced: that Bush is favoring the rich over the poor. What is worrying is that it seems the administration is taking a "who cares?" attitude to future budget deficits. In the interest of a sensible policy, demand and supply side policies should be balanced.

Though Bush has pulled it off in the past, I think McCain will at least partially stop him this time around. That, the Democrats and the Senate in two, should make something more sensible of the package. However, it's hard to tell from Germany. Write me what you think: max@niederhofer.biz

Cheers,

An angle I have never seen address is the possibility for tax evasion. Let's say you are a CEO working for a corporation that uses tax loopholes to pay no taxes in most years. Could the company give you a lot of a special class of shares that only you own, then declare a multi-million dollar dividend for that class of shares? If that is possible, I think you would quickly see a lot of CEO's pay virtually no taxes on the income from their company.

Regarding the comment by Unrelated Disney:

Under the current proposal, dividends are only tax-exempt to the extent that they represent corporate income which has been taxed by the US at the corporate level. This would cause difficulty in individual tax calculation for taxpayers, but would not permit the loophole you envision. It might be a way to make corporate compensation less transparent though.

What troubles me is the assertion that older Americans will benefit meaningfully from the dividend tax decrease. How? Retirement account dividends are not effected. Bond, REIT, convertible bond, and preferred stock dividends are not effected. So, an older American must have hundreds of thousands of dollars in taxable dividend paying stocks to get a decent benefit.

Each 100,000 dollars in the S&P will add about 1,700 dollars to income. Investors will save between 500 and 600 dollars a year from the tax cut.

This is a wonderful cut for those with 1 million dollars and more in dividend paying stock.

The Administration may well be successful in passing off opposition to the non-stimulus stimulus plan as class jealousy. Senator John McCain may well be the decisive figure in determining the fate of the plan.

Whether the plan will foster deficit problems in several years time, may be an issue of little influence. "Class warfare" has been a response that has often been effective for Republicans. We may well wind up with the plan passed.

Semms we're agreed it's not stimulus ... it's some sort of perestroika masquerading as stimulus. This opens two scarcely-related debates:

(1) Is it good perestroika or bad perestroika?

(2) Should anyone be doing anything about 2003's sluggish economy and resultant distress, and if so, what?

Ron, I believe, as Paul Krugman, that the most effective way to stimulate the economy would be to help states balancing their budgets (i.e. help not to cut on spending during a demand slow down). But, you see, there is now a majority of Democrat governors... So, all that is bad has to come from them, and irony of the ironies, all that is good has to come from the Federal Government...

Clever point Jean. We do need a stimulus to raise demand and GDP growth to begin to generate significant job creation. There are all sorts of revenue sharing plans that could help the states. There are all sorts of benign tax reductions that might be used as a stimulus. Hey, we could even have a tax reduction that exempts a "portion" of all interest or dividend earnings.

The states (48 out of 50, anyway) operate under an artificial intertemporal budget constraint: they're not allowed to borrow now and repay later to maintain level operations. (A couple other low-population oil states are doing OK on their own.)

The direct consequence is diseconomic: children in school are less well educated, road construction/repair is foregone (or more expensive, projects are interrupted in midstream), prison population is dumped onto slack job markets while drug treatment program slots are trimmed, preventive medicine is defunded. (These are above and beyond the usual multiplier effects.)

Results are lower aggregate output and higher casualty losses in subsequent periods. This happens in "red states" as well as blue.

If federal borrowing capacity is to be tapped to stimulate activity, temporary state aids should be high on the list.

I think that there has been too little consideration of the potential unintended consequences in investor behavior if dividends are exempt from taxation. How will investor preferences shift from growth to income stocks? How will it affect tax free munis? How will it impact corporate dividend policies? Unrelated disney just scratched the surface looking at the potential for tax evasion schemes.

To argue that this is good tax policy, ignores that it's bad economic policy that will not stimulate the economy, it's bad fiscal policy and bad social policy excessively favoring capital over labor.

Agreed, jsb.

One likely effect of this profit perestroika is that big investors will become more conservative (income-motivated), leaving small investors to become more aggressive (growth-motivated).

Is this a good thing? I have no idea!

>>Hey, we could even have a tax reduction that exempts a "portion" of all interest or dividend earnings.<<

The problem is that just because a plan include the two magical words "tax cuts" doesn't mean it's a good idea. The US is already walking on a tight budgetary line and therefore, every dollar of stimulus (either in tax cuts or increased spending) has to be spent wisely and alternatives have to be weighted against each other. Assuming of course that one cares about budget deficits and their effects on ivestment and about actually stimulating the economy.