What Should We Call the Bush Proposal?

Business Week's Howard Gleckman doesn't like the facts that the Bush Administration is calling its proposal a "stimulus package" and a "dividend tax cut." It's not a stimulus package. And while it's a cut on the taxation of corporate income, it's not right to describe it as a cut on taxes on dividends:

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BW Online | January 21, 2003 | The Secret of Bush's "Stimulus" Package: Nearly as much misinformation is floating around about President Bush's tax plan as about the possible invasion of Iraq. Much of the debate surrounding the proposed $670 billion tax cut is built around two critical assumptions: that it's an economic stimulus and that it will end the "double taxation" of dividends. Both, unfortunately, are wrong.

Let's tackle the stimulus argument first. At first, the White House claimed the plan would pump $100 billion into the economy over the next year, then conceded it would provide only about $58 billion. Senate Budget Committee Democrats say the stimulus actually would amount to less than $40 billion. Either way, in a $10 trillion annual economy, the impact of such a modest effort at pump-priming would be small. Even some of the White House's most ardent supporters concede the point. Kevin Hassett, an economist at the conservative American Enterprise Institute, says flatly, "It is not stimulus."

So what is it? Well, the centerpiece of the plan, the cut in dividend taxes, is really a longer-term effort to slash taxes on investment.... The problem is that all the rhetoric in this debate is misleading. It's a great bit of bumper-sticker logic for Bush to say the plan ends double taxation of dividends.... The Bush plan actually is both more and less than advertised. It's more extensive than most people realize because it would cut taxes not just on dividends but also on capital gains. It's less because it doesn't really end the double tax on dividends.... This piece of the plan benefits only dividend-paying companies and their shareholders who pay tax.... The Bush plan would... also provide a generous new capital-gains tax break for some shareholders... it would also eliminate taxes on the capital gains that result from retained earnings.... bottom line: It's really a $300 billion tax cut on owners of business capital. That might be a good thing. But it's about time policymakers stop talking in code and debate what the plan would actually do.

Posted by DeLong at January 21, 2003 03:18 PM | Trackback