President Bush’s new tax plan is an answer in search of a question. It would provide little short-term stimulus. It seems unlikely to provide much of a long-term boost to growth or jobs. It is an incomplete way to reform corporate taxes. It would not boost investor confidence. It would provide windfall gains for previous actions, rather than encouraging new activity. It would make taxes more complex. It does not fix the alternative minimum tax. It does not resolve uncertainty regarding the repeal of EGTRRA at the end of 2010. It is fiscally irresponsible and unduly weighted toward high-income households.
The plan has two main features: elimination of individual taxes on dividends and acceleration of the many features of the 2001 tax cut. The repeal of dividend taxes is essentially a price support program for investors, which is consistent with earlier Administration advocacy of price supports for farmers and the steel industry. Accelerating the 2001 tax cut—which was designed during boom times in 1999 to stave off a conservative political attack from Steve Forbes but has never been altered to address any changing economic circumstance since then—is also consistent with earlier Administration positions. A consistent political agenda, however, does not always make good economics.