May 29, 2003

May 29, 2003 | Commentary on Taxes

A World of Difference

Congress and President Bush finally have a tax cut everyone can agree on.

OK, almost everyone. After all, we've been hearing throughout the entire debate from some pundits and politicians who never met a tax cut they couldn't demonize.

Especially the one Congress approved in 2001. Only part of it has gone into effect, but that hasn't stopped tax-cut foes from using it as Exhibit #1 in their latest crusade.

"The Bush tax cuts have failed," Rep. Richard Gephardt, D-Mo., said recently. "They are not making the economy better, they are not helping people get jobs." Adds New York Times columnist Paul Krugman: "It's clear that the administration's tax-cut obsession isn't just busting the budget. It's also indirectly destroying jobs by preventing any rational response to a weak economy."

Ironically, though, the president's economic strategy has made our modest level of growth possible. A study from The Heritage Foundation's Ronald Utt notes that our economy grew twice as fast last year as the European Union's.

That's even more impressive if you consider the unique challenges our economy faces. The stock market bubble that popped on Wall Street in 2000 was worse than in Europe. Then the terrorist attacks of Sept. 11 hit us-hard.

Despite that, only Canada and Australia enjoyed more robust growth than the United States did in 2002. And let's not forget that Canada's economy is really an outgrowth of ours and that it gets a boost because we absorb most of its exports, while Australia models its relatively low-tax economy after America's.

True, a one-year snapshot proves little, but when Utt analyzed economic performance over longer periods of time, he found essentially the same trend. France's experience is typical: Citizens there have seen their buying power decline relative to America's over the past two decades-a period during which France embarked upon an aggressive tax-and-spend policy. Today, taxes in France consume more than 45 percent of the national economic output, compared to just over 29 percent in the United States.

Yes, unemployment in America is up slightly. The jobless rate rose by one-tenth of 1 percent last year, and we must work to change that. However, in the Euro Zone (the 12 countries that share Europe's single currency) unemployment soared by six-tenths of 1 percent. Clearly, the 2001 tax cut is helping us hold the line by creating the jobs necessary to replace most of the ones we're losing.

What does Gephardt propose? To repeal the 2001 cut and spend the money on universal health care. He claims that such a step will create economic growth.

To see if he's right, we need look no further than France and Germany, two high tax countries with national health care. The French economy grew barely half as much as ours did in 2002, and unemployment climbed to 9.2 percent. Even that anemic growth is better than Germany's. The economy there practically stood still last year (a growth rate of one-half of 1 percent) while unemployment climbed to 10.6 percent.

Higher taxes and more government spending aren't the answer. Remember that, for years, while high-tax Europe struggled and free-spending Japan suffered, the American economy soared, pulling the rest of the world with it.

The worldwide downturn has finally slowed us down, and trimming taxes is the way to get us back on track.

Good tax cuts boost our economy by encouraging people to work, save and invest. Our growth since 2001 proves it, and our future growth demands it. With the 2001 cut fully in place and an even better one on the way this year, our economy will remain the envy of the rest of the world.

Ed Feulner is the president of The Heritage Foundation (heritage.org), a Washington-based public policy research institute.

About the Author

Edwin J. Feulner, Ph.D. Founder, Chairman of the Asian Studies Center, and Chung Ju-yung Fellow
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