April 21, 2003

Compromising Position

The White House is willing to phase in tax cuts. The House's plan of $550 billion and the Senate's plan of $350 billion are both way below President Bush's $736 billion plan. With a war and Iraqi reconstruction to be paid for, Bush will have to compromise with squeamish Republicans. John Snow would take a 50% cut in the dividend tax if Congress were to phase in its elimination over 10 years. A phase-in would mean it would just be tossed to another Congress and/or President. Snow also said it was possible to delay the cut on the top marginal income tax rate. If I had a choice I'd fight for the income tax cut. Cutting the dividend tax would do well in preventing future Enron/WorldCom-like scandals by putting up a barrier to accounting magic tricks, and it might give a boost to stock prices, easing some of the public's economic uncertainty. But cutting marginal income tax rates would do more to spur economic growth. People would be more willing to take risks if the top rate were down to 35% instead of 38.6%. More risk-taking would do well for overall economic growth.

Larry Kudlow notes tax writers are working on faster business depreciation write-offs. If enacted that should boost capital spending. That would be especially good for companies in high tech depressions like JDS Uniphase [see chart], Juniper Networks [see chart], and even Cisco Systems [see chart].

"White House Considering Phased-in Tax Cuts"

"Streamlined but Sturdy"