The LABI Report: New Congress already at odds

Published 12:00 am Tuesday, January 21, 2003


The new Congress had been sworn in, and it took all of about 10 minutes to see the “working for the common good” talk dissolve into partisan combat. Let there be no doubt, the Democrats and Republicans in Congress will spend the next two years doing the political equivalent of pouring boiling oil on each other. And the first cauldrons have the label “Bush Tax Cut” on them.

As soon as President Bush released the outline of his plan to cut $675 billion in taxes over the next decade, the Democrats unleashed their salvos about the Republicans pandering to “the rich.” The GOP predictably fired back, decrying the Democrats’ continuing attempts to inflame class warfare. With Republican majorities in both the House and Senate, Bush has submitted a very bold proposal that he says is needed to stimulate the economy. The Democrats, rushing to upstage Bush, revealed the outline of their “stimulus” plan the day before Bush’s proposal was released. Predictably, the Democratic plan was much smaller in scope and very different in design from the GOP plan. The Democrats propose granting considerably less than $200 billion in tax relief over the next 10 years.

The Democrats’ focal point of attack is Bush’s $300 billion proposal to end the taxation of stock dividends. This particular plank in the plan is drawing the most fire from congressional Democrats. They say it is nothing but a “sop for the rich,” although estimates say that over 50 percent of the recipients of this tax cut would be retirees over the age of 65.

The Democrats argue that their scaled down version of tax cuts will stimulate the economy faster because it is targeted to lower-income individuals who will be more likely to spend it than the rich, who they say will be more inclined to save their tax savings. The potential fallacy in the Democratic approach is the question of what needs to be stimulated.

This country is, hopefully, trying to pull out of a very different kind of recession. Many economic downturns are caused by consumer spending drying up due to high levels of unemployment or workers’ uncertainty about keeping their jobs. The recent recession was not generated or sustained by a lack of consumer spending. It was clearly a durable goods manufacturing recession. A strong dollar, intense foreign competition, along with slower overall domestic economic growth (and the aftermath of Sept. 11) led manufacturers to drastically cut back their operations.

It would seem logical that any stimulus plan should address what needs to be done to enhance value-added manufacturing in general and durable goods manufacturing in particular. There may be legitimate alternatives to Bush’s plan to get this done, but simply acting to increase consumer spending by a small degree over a short period of time is not going to address this problem. Bush’s desire for the tax on dividend removal is geared toward attracting more investors into our struggling stock markets. An unbelievable amount of wealth (on paper at least) has disappeared in the last three years due to historically high levels of stock losses. By removing the tax on dividends, he obviously hopes to attract new equity to companies and fuel job creation and capital investment in that fashion.

When the dust settles on this issue, something will likely pass through Congress. It will not be Bush’s $675 billion plan or the smaller Democratic “counter offer.” It will likely be a combination of targeted tax relief (accelerated cuts and deductions for consumers) loved by the Democrats and investment incentives for businesses demanded by the Republicans. But in the meantime, much more burning oil will fill the cauldrons as the spears and arrows of partisanship fill the skies.

DAN JUNEAU is president of the Louisiana Association of Business and Industry.