American economists propose more aggressive tax cuts now

Many American economists and policy makers favour a larger tax cut than President Bush is proposing - and believe cuts should be made immediately.

Today's Wall Street Journal carries both a lead editorial and a piece to that effect by Richard Gilder and Thomas L. Rhodes, co-chairmen of the Club for Growth. Investor's Business Daily features similar arguments by Club for Growth president Stephen Moore and board member Lawrence Kudlow.

Tax-cut proponents will be cheered by their pro-growth arguments.

  • Gilder and Rhodes call for making all tax-rate cuts retroactive to January 1, 2001, rather than phasing them in over five years; repealing the death tax immediately; cutting the capital-gains tax and indexing it for inflation; raising IRA and 401(k) contribution limits; and cutting payroll taxes by at least 2 percentage points.

  • Moore and Kudlow advance a similar agenda - arguing that cuts should be 50 percent bigger than what Bush is proposing, while estimating that their programme will put the U.S. economy back on an annual 4 percent to 5 percent growth track.

  • In its editorial, entitled "Tax Cut Danger," the Wall Street Journal agrees - and warns that Bush's plan would be phased in over eight long years, a pace much too slow to achieve the economic stimulus needed now.

    Gilder and Rhodes want the top tax rate cut to the 28 percent level achieved in the 1980s. They recommend raising individual IRA and 401(k) contribution limits by $5,000 each year for the next 10 years - then abolishing IRA limits altogether.

    Moore and Kudlow point out that President Ronald Reagan's tax cuts were twice the size of what Bush proposes. And despite having the second highest death tax in the industrialised world, the U.S. raises only 1.5 percent of its federal revenues from it.

    All agree that now is not the time for timidity.

    Sources: Richard Gilder and Thomas L. Rhodes (both, Club for Growth), Bush Needs a Bigger Tax Cut, and Editorial, Tax Cut Danger, both in the Wall Street Journal; and Stephen Moore and Lawrence Kudlow (both, Club for Growth), The Time to Cut Taxes Is Now, But Bush Plan Should Be Bigger, Investor's Business Daily; all February 8, 2001.

    For WSJ article text

    For more on Taxes & Economic Growth

    RSA Note:
    What applies to America applies even more urgently to South Africa – we must reduce tax rates to provide the country’s most able entrepreneurs with the incentive to produce more goods and services. The road to increased income levels for the entire population does not lie in higher taxes and government expenditure but in reducing government’s appropriation of economic resources. Improved conditions for local entrepreneurs and foreign investors alike will increase capital investment and the growth of GDP. South Africa needs to try and emulate the 7%+ growth rate achieved by South Korea for the two decades prior to 1998. Growth of this magnitude would quadruple South Africa’s real GDP over twenty years and reduce poverty and unemployment, as nothing else is capable of doing.

    Eustace Davie, Director, FMF.
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