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Will the Tax Relief Package Have the Economic Stimulus the Economy Needs?

For Immediate Release. June 3, 2003On March 28, 2003, President George W. Bush signed into law a $330 billion tax relief package over 10 years that included $20 billion in aid for the states. 

On the positive side, the law has several pro-growth measures to stimulate the economy.  For example, the top income tax rate is reduced from 39 percent to 35 percent; the capital gains tax is reduced immediately to 15 percent; and the dividend tax is immediately reduced to 15 percent.  Furthermore, the economy requires a stimulus now, and the tax relief package is front-load so all the tax relief takes place immediately.  For investment through 2004 a bonus depreciation tax relief to 50 percent for business investment which increases from $25,000 to $100,000 the amount small business can expense.  And marriage penalty relief is provided from 2003 through 2004 as well as the children tax credit is increased from $600 to $1,000 per child. 

However, on the negative side, the tax relief is not made permanent and will “sunset” or  expire.  The problem with not making tax relief permanent, and if this problem is left uncorrected, the result will be a large tax increase in 2011.  Also, $20 billion in aid to the states is provided.  This just rewards states for fiscal irresponsibility when the latest Commerce Department data indicated that, compared to the same period last year, revenues have increased in the first three months by 5.4 percent.  Furthermore, by increasing outlays by six percent, they have spent that, and this spending in addition to a 13.4 percent increase between 2000 and 2002.  It is time for states to take federal welfare and stop squandering taxpayer dollars and decrease the size of their ineffective, wasting bureaucratic governments that the governors have created.   

“Tax relief is always a welcome sight for the overtaxed hard working American taxpayer,” said Dr. Joel P. Rutkowski, president of the American Voice Institute of Public Policy.  “In the short-term, however,” he added, “the impact on the economy may not be as large as expected because these are not normal economic times.  Furthermore, the tax relief package should have focused, at this time, fully on a pro-growth strategy to create jobs and boost economic growth.  Tax credits, state aid, and a reduction in the marriage penalty, will detract from the pro-growth effectiveness because they do not help the economy grow faster.” 

“Also, there are certain caveats that could hinder the potential stimulus effect of the tax relief package because these are not normal economic times. First, reports have indicated that the Federal Reserve is considering the possibility of reducing interests rates again this month.  However, each time this has occurred corporate downsizing and layoffs have occurred.  Furthermore, rate reduction has generated fear in the American consumer that will inhibit their spending habits that will not cause them to spend as they did in the past hindering economic recovery.  Second, the dollar has plummeted by about 25 percent against the euro since its lofty peak in early 2002.  This could have an effect on the United States (U.S.) financial markets that could cause a downward spiral in the U.S. equity and exchange market. Third, the President signed into law legislation that would make available through December an extension of federal unemployment benefits.  This will result in the unemployed taking a longer period of time to find new employment.  Fourth, corporate malfeasance has caused investors to shy away from investing in the stock market, and will continued to do so until their confidence is returned.  Fifth, Japan and Germany, the world’s second and third largest economies, respectively again appear to be in recession, and both are experiencing differing degrees of deflation.  Sixth, the U.S. has progressively lost its allure for foreign investment after the collapse of the U.S. equity markets early in 2000. 

“The bottom line with Americans is having a job,” said Dr. Joel P. Rutkowski.  “Since America is not in a normal economic cycle the tax relief provided since it did not focus totally on a pro-growth strategy may not promote job growth enough for the more than 2.0 million unemployed Americans that have lost their jobs.   And if it does not produce the desired jobs for the unemployed in their eyes this tax relief package will be a failure even though it did spur minimal economic growth, “ said Dr. Rutkowski.   

For Interviews Contact:

Joel P. Rutkowski, P.h.D.
President, The American Voice Institute Of Public Policy

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