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Wed, Jan. 29

Tax-cut plan will provide manna to all investors

WASHINGTON –  President Bush's tax-cut plan will help "the very, very, very few and eliminate the majority from any benefit," says assistant Senate Democratic leader Harry Reid of Nevada.

Reid's preposterous claim shows that he and his Democratic allies still do not understand what fuels a growing, job-creating economy or where an expanding investment class will get its future retirement incomes.

Bush's bold tax-cut plan –  double the $300 billion originally envisioned –  is heavily tilted toward the investor class, especially retirees (a key part of the Democrats' voter base) and those who will be retiring in the coming years. More than 50 percent of all adult Americans now own stocks, close to 100 million people who will benefit directly or indirectly from eliminating the dividends tax, as Bush proposes.

Ending the double-taxation of corporate earnings not only improves the bottom line, but also beefs up stock values, as the sharp surge on Wall Street demonstrated this week.

This will restore the wealth effect, which will enlarge consumer spending. A 10-percent rise in stock values could produce as much as $50 billion in higher consumer spending, say economists.

It will also boost dividends, which millions of Americans depend on for income in their retirement years.

Democrats such as Reid or House leader Nancy Pelosi (California) say Bush's plan will help only the rich. Does that mean anyone who owns stock is "rich"?

That means 50 percent of Americans are "rich" and that's probably a surprise to those many ordinary Americans who own 401(k) company equity plans, personal mutual fund accounts and other stock ownership portfolios.

Studies show that just about every income group and every age cohort owns stocks, directly or through mutual funds. Retirees own the bulk of this wealth, but that represents a lifetime of work and investing. Is Democratic economic policy turning against the elderly? It would seem so.

These stockholders are the "regular folks" that Democratic Sen. John Edwards of North Carolina talked about when he announced plans to run for president. They are blue-collar workers on the assembly line at Procter & Gamble and other corporations that have employee stock-ownership plans. They are ordinary white-collar workers saving for their retirement. They are accumulating wealth, but they do not consider themselves "rich." "The president is trying to pull a fast one ... to put money into the pockets of the richest Americans over a long period of time, while providing very little help for regular people," Edwards said this week.

How sad that Democrats like Edwards can't stand the thought that ordinary workers will be able to get a higher yield on their investments.

Will wealthy people who own a lot of dividend-paying stocks do well? Of course. But ordinary workers with 401(k) or IRA plans will see their wealth grow faster, too, as the stock market takes off.

When Democrats talk about the plan helping the rich, they conveniently leave out Bush's proposal to double the per child family tax credit. He will accelerate the per child tax credit (now at $600) by sending $400 rebate checks to middle-income families.

A family with four kids will get $4,000 lopped off their tax bill.

But the critical pro-growth component is Bush's decision to step up the income tax rate reductions for all income groups, a key Reaganite, supply-side tax policy that he refuses to abandon. This will put additional liquidity into the economy, boosting investment, encouraging work and producing more jobs.

There is additional aid to the states to bring some Democrats on board, such as Montana Sen. Max Baucus, and business tax breaks to encourage capital investment.

A big, fat warning: Pay no attention to the hysterical claims from Bush's Democratic critics that his plan will seriously increase the budget deficit and drive up interest rates.

First, the plan's $600 billion cost, spread out over 10 years, is just a tiny fraction of the $20 trillion the government will spend in this period. This is a mere 3 percent of what the feds spend each year, hardly an amount that is going to endanger anything.

Second, while the deficit will rise in the short term, there is no proof that deficits raise interest rates. Deficits were tame in the late 1970s while interest rates skyrocketed. In the 1980s, interest rates fell while deficits soared.

Third, the government can offset the plan's costs partially by pruning nonessential spending. In the long run, faster economic growth will produce more tax revenue, which will eventually erase the deficits.

The Democrats played class warfare to the hilt in the elections and the GOP strengthened its hold on the House and won back the Senate. The Democrats now say they didn't wage class warfare hard enough. When will they ever learn?

Copyright 2003, United Feature Syndicate, Inc.

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