Tax-cutting Democrats?

Well, maybe they’re not being vocal about it, but Investor’s Business Daily did not something in Nancy Pelosi’s press release on the economic stimulus package making its way through Congress.

We’re so used to Democrats pushing tax hikes as the answer to all of America’s problems that we were taken aback to find the following words buried in Pelosi’s release on the stimulus deal: "Economists estimate that each dollar of broad tax cuts leads to $1.26 in economic growth."

Gee, that sort of sounds familiar. It’s almost, though not quite, like what the much-reviled supply-side economists have been saying for, oh, 30 years or so.

Pelosi, and other Democrats now suddenly touting tax cuts, may be on to something. We might demur on the notion that all tax cuts must be "broad" to be effective. Evidence really lies more strongly with giving tax cuts to those who would start new businesses or expand old ones. But it’s refreshing to hear a Democrat admit the obvious — that tax cuts work.

Now, their base may have other thoughts on this, which is why I’m sure we haven’t heard much about this being trumpeted by Pelosi’s office.  It has been Received Wisdom, from the Democrats’ point of view, that tax cuts — letting people keep their own hard-earned money back to them — is somehow bad, economically and morally.  Here we see that, behind closed doors (and within unread papers), they may, in fact, not think that, at least economically. 

IBD, though, notes that not every tax cut has the same effect.

But not all tax cuts are created equal — something, unfortunately, Democrats don’t seem to get. They think giving tax cuts — or, more accurately, cash — to those with lower incomes results — presto! — in stimulus. That’s not the case. Rebates are like welfare checks.

In fact, investors and entrepreneurs create economic growth, new jobs and higher incomes. They’re the risk takers who build our economy. But today they’re taxed at the most punitive rates.

The biggest bang for the tax-cut buck, therefore, comes from lowering rates for those who will actually take the money and create or expand a business with it — not just spend it at Wal-Mart.

New research shows this to be true. In the broadest such study ever, University of California economists Christina and David Romer looked at every tax change in the U.S. after World War II.

Their unambiguous conclusion: "Tax cuts have very large and persistent positive output effects." Indeed, a tax cut of just 1% boosts GDP by about 3% for several years, they found.

This is a truth that the Democratic base really isn’t ready for, but baby steps are good.

Technorati Tags: tax cuts, Democrats, Nancy Pelosi, Investor’s Business Daily, economy

Filed under: Democrats • Economics • Government • Liberal • Politics

Like this post? Subscribe to my RSS feed and get loads more!