Acton Commentary

Pro-Growth Agenda vs. Class Warfare Politics


In fine Washington style, the announcement of President Bush’s economic growth plan has sparked another round of inside the beltway class warfare. Typically, the anti-growth crowd has issued the now stale cry that this plan “benefits the wealthy”, while leaving little for low and middle- income Americans. This perennial call to arms issued by the anti-growth base is supposed to articulate the concerns, as one Senator has described in his every statement since recently grabbing the media’s attention, of the “regular people.” Such a clarion call, however, greatly misunderstands economic reality and the developing dynamics of the American economy. While no legislative plan is perfect, it is fair to say that the Bush plan has much to offer middle-income, and especially low-income Americans.

Many in the welfare state crowd would prefer to “help” America’s low-income citizens with direct cash subsidies, in one form or another, from the government. As has been illustrated time and time again in situation after situation, this is a totally ineffective way to raise standards of living. It seems obvious to point out that the best way to raise standards of living is foster a dynamic, growing economy that produces meaningful employment. In America, the majority of new jobs created are created by small businesses. Small businesses are almost exclusively the first line of employment and capital formation for many on the economic margins, serving as a valuable ladder to economic prosperity. One has only to take a stroll through the immigrant neighborhoods of any city to see numerous small businesses conducting brisk trade and forming the foundations of the local community.

Yet, these small businesses and their owners, which are so important to the American economy and society, are often heavily regulated and overtaxed. It is common for small business owners, who might show a high level of prosperity on paper, to be taxed at or near the highest rates. As such the provisions in the Bush economic growth plan that would speed up marginal tax rate reductions, as well as the plan to increase the expensing limits from $25,000 to $75,000 for the small business owner who purchases equipment, makes good economic sense. This combination of reducing marginal rates and increasing expensing limits will free up more dollars for capital investment, which will lead to the creation of jobs for those who need them most. The fact is that small businesses create the majority of new jobs and account for half the output of the U.S. economy. As a result, they shouldn’t be penalized for doing well and providing meaningful work.

Anti-growth pundits, however, have realized (at least superficially) that the economic dynamic of the electorate has changed. So rather than being against tax cuts per se, they resort to a strategy of complaining about the paltry size of the proposed reductions in marginal rates, which in their understanding means they shouldn’t be enacted at all. Of course, were the pro-growth majority to propose larger reductions in marginal rates, they would label such proposals as “risky schemes” and “irresponsible.” Such rhetoric, however, belies the fact that the reductions will realize those much sought after “felt gains” in the taxpayer’s wallet if the marginal tax rate reductions are enacted.

  • Ninety-two million American taxpayers would receive, on average, a tax cut of $1,083 in 2003.
  • 46 million married couples would receive an average tax cut of $1,716.
  • 34 million families with children would benefit from an average cut of $1,473.
  • 6 million single mothers would receive an average cut of $541.
  • 13 million elderly taxpayers would receive an average cut $1,384
  • 23 million small business owners would receive tax cuts averaging $2, 042

Furthermore, the marriage penalty, which hits low-income workers hardest and serves as financial obstacle discouraging marriage, will be reduced now, instead of waiting until 2009. This reduction, combined with an increase in the child tax credit, from $600 to $1,000 this year makes clear that this administration understands that stable marriages and family life serve as a foundational principle in wealth creation, and as such, ought not to be disincentivized by the tax code. With certain cultural forces growing ever more hostile to traditional marriage and family life, the special attention paid to doing justice to families is particularly noteworthy.

There is also significant recognition in this plan of what is often referred to as the “investor class.” Statistics on this group indicate that about 50% of all Americans, and about 70% of all voters own stock either directly or through various investment vehicles. Given this fact of national economic life, the old class warfare rhetoric rings a bit hollow, as voters are more sophisticated in matters economic than ever before. The proposed elimination of double taxation of dividends would offer a direct benefit to 35 million American households who currently receive income based on dividends. Under current law, the IRS taxes a company’s profits, and then it taxes investors who receive profits as dividends. The result of this double taxation is that for every dollar of profit a company could pay out in dividends, as little as 40 cents can actually reach shareholders. Allowing taxpayers to exclude dividend payments from their taxable income would return about $20 billion to the economy this year. The fundamental fact remains--double taxation is wrong and a violation of justice. It is only right that any economic growth plan address this important issue.

As has been said before , pro-growth does not mean anti-poor. Quite the opposite is true. If one understands that growing the size of the economy is the best way to create jobs and raise standards of living, then it is clear the pro-growth agenda has much to offer low-income workers. For too long, welfare state economics have succeeded in only nurturing a certain level of subsistence living for many Americans, instead of creating economic opportunity. The pro-growth agenda, not the nanny state, is where true economic opportunity lay and it is to be lauded that it is being proposed with both moral clarity and vision.