The Bush ?Economic Growth Plan?: Where's the Growth? Or the Fairness?

OMB Watch strongly opposes the President’s “Growth and Jobs Plan to Strengthen the American Economy” for a host of reasons. There is no question that the President’s plan is bold. But it is unlikely to provide an economic stimulus now, when it is so needed; it moves the country in the wrong direction over the long-term; and it will adversely affect services upon which Americans depend while doing nothing to increase economic growth and jobs.

OMB Watch strongly opposes the President’s “Growth and Jobs Plan to Strengthen the American Economy” for a host of reasons. There is no question that the President’s plan is bold. But it is unlikely to provide an economic stimulus now, when it is so needed; it moves the country in the wrong direction over the long-term; and it will adversely affect services upon which Americans depend while doing nothing to increase economic growth and jobs.

OMB Watch strongly opposes the President’s “Growth and Jobs Plan to Strengthen the American Economy” for a host of reasons. There is no question that the President’s plan is bold. But it is unlikely to provide an economic stimulus now, when it is so needed; it moves the country in the wrong direction over the long-term; and it will adversely affect services upon which Americans depend while doing nothing to increase economic growth and jobs.

At the heart of the Bush plan is the elimination of taxes on corporate dividends – a costly proposal that meets none of the criteria for stimulating the economy. It is an unwise, complicated tax policy that puts an additional sizable dent in federal, state, and local revenues at a time when such revenues are needed for critical services ranging from homeland security to education to health care.

Since the President proposed the idea of eliminating the dividend tax, even Wall Street – the primary beneficiary of the plan – has reacted with skepticism. After a small blip in the stock market on initial news of the plan, the market has continued to stagnate. The reason may be that companies recognize that there will be greater pressure to dole out corporate profits in shareholder dividends instead of reinvesting in the company. Or it may be that companies realize that the proposal may be unworkable. The only dividends to individuals that will not be taxed are those dividends on which the company has already paid a tax. Since most companies have found many ways to avoid paying corporate taxes, while still providing dividends, individuals will still be taxed on the dividends they receive. This will require a cumbersome, if not unworkable system, to monitor different types of dividends to determine whether the company did or did not pay tax on that profit. Individuals will also need to be able to distinguish between different types of dividends to determine their tax liabilities.

Adding to this irresponsible proposal, the President proposes acceleration of the tax cuts of 2001, speeding up the tax breaks for the wealthy. Given the unevenness in the economy and the increased strain on government to address domestic and national security needs, the logical next step would be to put a hold on the 2001 tax cuts that have not yet been implemented – at least until we can afford them. But the President defies all logic and gives wealthy taxpayers an added break. Never in a wartime period has the country lowered taxes on the wealthy – it is ill-advised and irresponsible.

Some have begun to speculate that the President has proposed the egregious in order to end up with the outrageous. This seems to be the modus operandi of conservatives. This time we cannot let this happen. It is a recipe for disaster.

This chart [1] outlines the Bush plan and compares it with two Democratic alternatives – a plan by Sen. Max Baucus (D-MT) and one by House Minority Leader Nancy Pelosi (D-CA), both of which contain tax breaks in addition to other provisions. We remain skeptical about the need for any additional tax breaks. Nonetheless, it appears Congress is determined to provide more tax breaks. In that case, the two Democratic plans provide a much better approach since the tax breaks they propose are targeted and short-term. We are convinced that the federal government should take decisive action to help stimulate the economy. This action should be in the form of short-term spending initiatives, helping to create jobs and provide counter-cyclical resources in communities. Thus, support to states and localities is an essential component.

Read more in this detailed explanation of why the Bush plan is so troubling [1]. The conclusion provides a list, generated by Sen. Ted Kennedy (D-MA) [2], of things the government could do with the amount of money that would be lost due to the Bush corporate dividend tax cut.

An economic plan that benefits the wealthy at the expense of the federal, state and local services upon which ordinary citizens depend is not a plan for “growth and jobs.” Increasing the long-term deficit in order to provide the services that people need in a difficult wartime economy is one thing. Increasing the long-term deficit to help the rich become richer is quite another. We need to join together to voice our opposition, undeterred by conservative charges of “class warfare.” As Richard Cohen’s deceased grandfather says to him as reported in Mr. Cohen’s op-ed in the Washington Post, January 9 [3], “[L]ook boychick, it’s always been this way. When the rich take from the poor, it’s called an economic plan. When the poor take from the rich, it’s called class warfare.” We need a plan to stimulate the economy to create jobs and growth so that we can all thrive.

Take Action! Modify this letter (or use as is) and email it directly to your Senators and Representative [4] to tell them you won't accept the Bush tax cut package.