Campaigning on Tax Cuts

By November 27, 2007Taxation

Gerald Seib of The Wall Street Journal considers the attractiveness of tax cuts for both the Republican and Democratic presidential candidates, even more attractive in the face of an economic slowdown.

For Republicans, the bad news is that they inevitably would shoulder much of the blame because they control the White House. The good news for them is that they can start pushing tax cuts as a way to spur a slumping economy. That’s a better argument than pushing tax cuts for their own sake, which is pretty much where Republicans have been. The moment may be meeting the message.

For Democrats, the tax-cut question will be the opposite: If the economy is perilously close to recession, do you really want to propose tax increases? And a tax increase is precisely how Republicans portray any move to undo the Bush tax cuts.

So that’s a column about politics, mostly, and a good one. Larry Kudlow adds more on the economics of cuts:

Democrats also will try and make the case that taxes should be cut for the so-called middle class, and raised on upper-income earners. This is futile. It’s also bad politics. Taxing successful earners is a tax on capital and investment, which has recently become scarce during the housing crisis.

Republicans should take care to propose lower tax rates on middle-income earners, as well as successful investors. The real supply-side “bang for the buck” comes at the top-end, but across-the-board rate reductions do have positive economic and political benefits. Collapsing the middle-income brackets — 15 percent, 25 percent, and 28 percent — would make a lot of sense.

Don’t forget the corporate tax rates, either.

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