The Republican Tax Cut is the Wrong Medicine for our Ailing Economy
Our economy is in trouble. Stock values have dropped 28 percent, unemployment has risen from 4 percent to 6 percent, and we have lost 2.6 million jobs since President Bush took office, despite the passage two years ago of the president's primary domestic initiative -- his $1.35 trillion tax cut. It is clear that Congress needs to take action to address our ailing economy. But the Republican prescription of more tax cuts isn't the right medicine.
Several days ago, the House Republicans introduced a bill that would cut taxes by $550 billion over the next 10 years. This bill contains a $300 billion provision that would permanently reduce tax rates on dividends and capital gains. This bill also contains a number of smaller provisions that would increase tax breaks for married couples and households with children -- but it would allow those tax breaks to expire after 2005 in order to keep the bill's cost down.
During the four years when the federal government was running surpluses, I supported tax cuts targeted toward middle class families like those in my district. But it is clear that the new Republican tax cut plan would do little to help most people in southwestern Pennsylvania -- and that passage of these tax cuts would hamstring the federal government's ability to provide this region with the help we really need.
People in this area need jobs. We need affordable health care. Senior citizens throughout the region need Medicare prescription drug coverage. We need access to high-quality education. We need to have our roads, bridges and mass transit improved. And there are 89 communities in this region that have been ordered by the federal government to make $3 billion in repairs to their sewer systems. Those communities need help from the federal government to make those repairs.
This country needs an immediate stimulus that will put our economy back on track. But a number of respected economists and business leaders have questioned the wisdom of massive tax cuts at this time. Federal Reserve Chairman Alan Greenspan, for example, testified before the Senate Banking Committee recently that the larger deficits caused by major tax cuts would significantly undercut any benefits those tax cuts might produce.
And last month, The Associated Press reported that the highly respected businessman and investor Warren Buffet had said that "President Bush's proposed tax cut on corporate dividends would not be fair because it favors the wealthy and there is no guarantee it would stimulate the economy." Buffet went on to say that "The idea that it creates all kinds of jobs and everything else, that's what sort of turns me off. . . . They don't have the faintest idea, in my view, of how many jobs this is going to create."
The deficit is expected to reach $400 billion this year, and Congress is projected to run massive deficits annually for the foreseeable future. Given the many pressing needs facing this country -- the war on terrorism, the replacement of our country's aging infrastructure, the current health care crisis and the need to invest in our children's education -- any proposal to make massive permanent cuts in taxes is fiscally irresponsible. A tax cut like this would also explode federal deficits in the coming years and make it almost impossible to establish a comprehensive Medicare prescription drug benefit, which has been estimated to cost roughly $1 trillion over the next 10 years.
Perhaps more important in the short run, the proposed tax cuts would do little to stimulate the economy and create jobs. In fact, targeted federal investments would be more effective at providing a short-term stimulus for the economy.
Such investments would be fairer, too. While the bill's supporters have estimated that the average American household would receive a tax break of roughly $1,100 under the House Republican bill, this estimate distorts the amount of tax relief that the typical American household would receive. Taxpayers with annual household incomes of $40,000 or less would receive an average total tax cut of just $135, for example. In contrast, taxpayers with annual household incomes of $200,000 or more would receive an average total tax cut of $12,000. Moreover, this bill provides only two or three years of tax relief to most families -- at the same time it makes its major tax cuts for the wealthy permanent. That's just not right.
Instead of this ineffective, inequitable and irresponsible tax cut, Congress should provide immediate short-term relief to states like Pennsylvania, which are being forced to make devastating cuts in education, health care for children and the elderly and public safety. Congress should also extend unemployment benefits for people who, because of the recession, are still unable to find new jobs.
In addition, Congress should provide additional investment in public infrastructure like roads, bridges, mass transit and sewers. And, finally, Congress should ensure that Medicare and Medicaid are adequately funded.
Such an approach would constitute a fair, fast-acting and fiscally responsible federal response to the current economic recession.