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Dashed Hopes

Anti-Tax Crusaders Work for Big Shift

After the third tax cut in three years, some Bush administration policymakers are pushing for more fundamental changes that would largely shelter investments from taxation, dramatically changing the way Americans are taxed and how the government is financed.

But they are running into surprising opposition from White House officials who fear that such prescriptions could have dangerous economic and political consequences as the budget deficit grows.

President Bush, in his State of the Union speech: Jobs are created when the economy grows; the economy grows when Americans have more money to spend and invest; and the best and fairest way to make sure Americans have that money is not to tax it away in the first place.

Conservatives are beginning to realize how bad the statism is under Bush (even though it's probably better than it would have been under Gore). I hope Bush remembers those words when he hears proposals like the ones mentioned in the article.

Last year, Ernest S. Christian, a Treasury official in the Reagan administration and founder of the Committee for Strategic Tax Reform, devised a plan for stealth tax reform in "five easy pieces."

Placed against the tax cuts of the past three years, Christian's agenda is beginning to look like a road map: lower marginal income tax rates, including capital gains tax rates; eliminate taxes on dividends; accelerate the speed with which businesses can write investment expenses off their tax bills; expand the Roth individual retirement account to all personal saving; and exclude export and other foreign trade income of American companies from taxation.

The first piece, lower rates, has now been accomplished in dramatic fashion. The top income tax rate of 39.6 percent in 2001 has now fallen to 35 percent, while the tax rate on most capital gains has fallen from 20 to 15 percent. A substantial leap toward completion of the second piece was taken when taxes on corporate dividends were cut last month from a top rate of 38.6 percent to 15 percent for most dividends, and 5 percent for others. A year ago, the concept of the "double taxation of corporate earnings," as opponents refer to dividend taxation, did not exist in the political lexicon. Now it is front and center.

As for the third piece, tax cuts in 2002 and 2003 drove up depreciation rates to the point where companies can now write off at least half the cost of their investments in the first year.

And with his 2003 budget, Bush appeared to have followed Christian's fourth recommendation precisely by proposing "lifetime savings accounts" that would allow everyone, regardless of age or income, to shield $7,500 a year from investment taxation. The accounts would be accessible at any time for any reason. A family of five could put away $37,500 annually, a figure that very few Americans could even contemplate saving.

In the grand scheme of things, they are merely steps in the right direction, but (sad fact that it is this way) in today's context they are quite dramatic modifications to the system and I would support them enthusiastically.

Of course, what seems to get lost in all this is federal spending levels. Some people have suggested the tax cuts are a way of starving the federal government of money...but the national debt ceiling continues to be raised too regularly for me to put much faith in that idea. I don't think enough Republicans in Congress have the political balls to engage in any hard reform.

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