May 6, 2004
The roar of good economic news is getting louder.
Our economy expanded 4.2 percent in the first quarter of the year. That follows 4.1 percent growth in the fourth quarter, and 8.2 percent growth in the quarter before that.
Over the last three months alone, our economy created more than a half-million jobs. Business investment grew 11.4 percent. Wages and salaries jumped 4.8 percent. And according to The Wall Street Journal, economists expect growth of at least 4 percent the rest of the year.
Surprised? There's no reason to be.
In the second quarter of 2003, President Bush signed legislation that lowered tax rates on the money entrepreneurs invest in the economy -- and those rate cuts took effect immediately. The 2003 tax bill also accelerated some of the tax cuts from the 2001 legislation -- specifically, the tax rate reductions that weren't scheduled to take effect until this year and 2006.
This matters, because the economy doesn't get much benefit today if tax rates are reduced in the future. That's why the 2003 tax cuts had a bigger effect than the 2001 tax cuts. Once lower tax rates go into effect, businesses start to invest more, which means more jobs and higher wages. GDP starts to increase. Good news starts to pile on top of good news until you witness what we're seeing today: an economic recovery.
Perpetual growth isn't guaranteed, though. In fact, the tax cuts that have done so much to boost growth today could disappear beginning as early as 2009. This is a time bomb that could derail future growth.
Some tax cuts could expire even sooner. The child tax credit will drop from $1,000 this year to $700 next year. The standard deduction for joint filers will decrease next year, leading to the return of the marriage penalty. (The House of Representatives, at least, recently voted to extend this tax break.) That would mean a sudden tax increase for most of us. And "bonus depreciation" will expire next January, which will mean higher taxes on new business investment.
President Bush has asked Congress to make all the cuts permanent, and the sooner the better. Because so many provisions are set to expire, many businesses are in limbo. Should they invest now, or wait to see if tax rates go up or down? By making today's tax rates permanent, lawmakers would remove the guesswork and allow these companies to invest with confidence.
And we need all the confidence we can get, because no matter how good the news is, some people will always find a way to apply a negative spin. Consider Sen. John Kerry's "Middle-Class Misery Index."
The index, released last month, attempts to update a concept many of us remember from the 1970s. Back then, we simply added the unemployment rate to the rate of inflation. The higher the number, the worse things were. During the Carter administration, the Misery Index topped 20.
But, because of low inflation and a steadily improving jobs picture, today's Misery Index is relatively low -- less than eight. So Sen. Kerry has cherry-picked several unrelated stats: median family income, college tuition, health costs, gasoline costs, bankruptcies, the home-ownership rate and private-sector job growth, and combined them into something he calls the "Middle-Class Misery Index."
It's not surprising that five of Kerry's hand-picked numbers are going down. It's also not surprising that Kerry ignored traditional barometers such as GDP and overall employment. Since those statistics, aided by several years of lower taxes, are on the rise, they show the middle class in resurgence, not misery.
And even the stats he chooses to highlight are misused. For example, he looks at family income before taxes. That makes no sense, because it ignores the big tax cuts most middle class people have enjoyed in recent years -- tax breaks passed at the urging of the Bush administration.
Some in the middle class are still struggling, but there's no ignoring the big picture: Today's economy is solid and getting stronger. We're generating jobs -- 1 million people joined the labor force last year -- and increasing wages.
Tax cuts are a big reason for our growth. Let's lock in future growth by making those cuts permanent.