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"Tax Cut Impetus Building" By Glenn Kessler, Juliet Eilperin (The Washington Post)
Official Web site: Club for Growth
Transcript: Center on Budget and Policy Priorities on Bush tax cut
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Live Online Transcripts

Bush's Tax Proposal
With Stephen Moore
Economic Expert, Club for Growth

Thursday, Feb. 8, 2001; 3 p.m. EST

President Bush plans to send his 1.6 trillion dollar tax plan to Congress on Thursday -- a proposal that has garnered a lot of support and some definite criticism. While the plan has some Democratic support and the thumbs up from Federal Reserve Chairman Alan Greenspan as a means to boost the economy, others worry that the plan -- scheduled to take place over ten years -- will cause an 80s style deficit.

How will the tax cut affect the U.S. economy? What are the pros and cons?

Stephen Moore is president of the Club for Growth. Previously, Moore was a senior economist at the Joint Economic Committee under Chairman Dick Armey of Texas. Moore is a contributing editor to National Review; serves on the economic board of advisors for Time magazine; and is a regular contributor to The Wall Street Journal, Human Events, and Reader's Digest and has appeared on such television shows as PBS's McNeill-Lehrer News Hour, CNN's Crossfire and Moneyline, NBC's Nightly News, Fox Morning News, and The McLaughlin Group. He will be live online, Thursday, Feb. 8.

The transcript follows.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

washingtonpost.com: Good afternoon Mr. Moore and welcome. President Bush sent his tax cut plan to Congress today, where many believe it will find little resistance. Do you think his proposal would be so warmly received if there wasn't the threat of recession?

Stephen Moore: Clearly the political momentum for the tax cut has been enhanced by the slow down of the economy. As Americans become more anxious about losing their jobs and about the declining value of their stock portfolios, their support for tax cuts has soared.

Annapolis, Md.: Could you please critique the following comment from the earlier discussion:

"The Bush plan certainly benefits the top of the income spectrum more than those with low and moderate incomes. The one percent of the population with the highest income would receive about 40% of the tax cut (even though they only pay about 20% of all federal taxes), while the bottom 80% of the population would receive only 29%.

Even many families with kids would not benefit from the Bush tax package. Our estimates show that about 12 million (or nearly one in three) families would not receive a tax cut. These families include 24 million children."

washingtonpost.com: Transcript: Joel Friedman, Center on Budget and Policy Priorities, on Bush's Tax Cut Proposal

Stephen Moore: I strongly disagree with this idea that the wealthy benefit most from the Bush tax cut. The people who are hurt most by an economic slow down are at the low end of the income ladder. Those are the people who are likely to lose their jobs or see their incomes reduced as a result of the economic slow down. A tax cuts that provides a strong stimulus to the economy will ensure that people do not lose their jobs and that incomes continue to rise. That's vitally important to low income and working class Americans.

Indianapolis, Ind.: From a national economic policy perspective, does it matter who benefits the most from a
tax cut, or is that a political issue?

Stephen Moore: I believe that those who argue that only the rich benefit from this tax cut are engaging in class warfare. The Bush plan gives the biggest percentage of the tax cut to the lower end of the income scale rather than to those at the high end of the income scale. John F. Kennedy had it right when he said that a rising tide lifts all boats. If we can provide a supply site tax cut stimulus from the Bush plan all Americans will benefit.

Washington, D.C.: Are the surplus estimates based on both current tax rates and current economic growth? If so, would a tax cut and/or further economic slowdown reduce the projected budget surpluses now used to help justify a tax cut?

Stephen Moore: This question is an important one. The surplus estimates assume current rates of economic growth and that the tax policy remain unchanged. The only way that the projected budget surplus will not materialize is if the economy goes into the tanks. The lesson of the last 10 years is that economic growth is what drives the budget estimates. In the 1990s we grew our way out of the budget deficits and we need to have continued strong economic growth if we want to have surpluses in the future. A tax rate reduction is the best way to ensure strong economic growth.

Gilbert, Ariz.: What if the projected surplus does not materialize?
Does the president intend to pass a tax cut bill without safeguards? After the last tax cut, didn't the debt triple? Might that happen again?

Stephen Moore: It is true that the debt tripled in the 1980s but it's also true that the tax revenues doubled after Reagan cut taxes. In 1980 we had 500 billion dollars in federal revenues. By 1990 we had one trillion dollars. Clearly the deficits of the 1980s were not a result of the tax cuts. The reason we did have deficits in the 1980s was federal spending on the military and domestic programs grew even faster than revenues did. One last point on the deficits of the 1980s: Most of those deficits financed the Reagan military build up to win the Cold War. It's always appropriate to fund a military expansion in a time of war -- assuming we consider the Cold War to have been a war. It's appropriate that future generations would have to pay off the debt because they are the ones that will benefit from there not being a Soviet Union threat to the U.S. When is the last time you worried about thermo-nuclear war? That was something people worried about in the 1970s.

Laurel, Md.: The rich receive a certain high fraction of the windfalls from Bush's tax relief plan. How does that fraction compare to Clinton's 1997 tax cut, which primarily lowered capital gains?

Figuring the rich have disproportionately high income from capital gains, I'd argue that no recent president has favored the rich more than Clinton.

Stephen Moore: It is true that in dollar terms the rich receive the largest percentage of the tax cut under the Bush plan. It is also true that under the current income tax structure, the rich pay the vast majority of the income taxes. For example, currently the wealthiest one percent of Americans make 17 percent of all the income, but they pay 33 percent of all the income taxes. In fact, the riches one percent of Americans pay more on income taxes then all of the people with an income below the median level in the United States -- that is to say that the richest one percent pay more than the bottom 50 percent do. On the issue of capital gains taxes, the revenue from capital gains taxes have actually doubled since we cut the capital gains tax in 1977. That is to say, when we cut the capital gains tax, the rich actually paid more taxes not less.

Minneapolis, Minn.: In my experience, tax cuts seem to help those with families. But my husband and I are childless and we do not own a home, so we can't get any of the benefits of EIC or head of household status. Is there anything in the new tax plan that would benefit us? Particularly I am wondering if they will equalize the standard deductions for two single people vs. a married couple. As it is today, we pay a large penalty in the standard deduction because we got married instead of just moving in together. (So much for so-called family values.)

Stephen Moore: There are three major elements to the Bush tax plan.

1. An elimination of the death tax over ten years. 2. The elimination of the marriage tax penalty. 3. The reduction of the income tax rates including the bottom rate falling from 15 percent today to 10 percent under the Bush plan. The top income tax rates would fall from 40 percent to 33 percent. If you pay income taxes now, then you will get a tax cut under the Bush plan.

Washington, D.C.: What kinds of provisions are there for capital gains taxes in the Bush plan. An income tax cut is great, but a capital gains tax cut would be the icing on the cake (and I say this as an everyday investor using mutual funds, NOT some "Wall Street bigwig").

Stephen Moore: Unfortunately, the George W. Bush plan does not do anything to cut the capital gains tax. This is idiotic. As I mentioned above, the last time we cut the capital gains tax in 1997, we actually INCREASED capital gains tax collections. I have always said that if you really want to soak the rich, then cut the capital gains tax.

Chantilly, Va.: The rate cut should affect everyone equally. Why are those earning 65,000 and more getting a 6% rate cut while the majority of working Americans who earn between 27,000 and 65,000 getting only 3% rate cut. Already the rich are getting richer and the poor poorer -- even under the Clinton Administration. The budget deficit will grow under the new tax cuts and the poor will suffer with a weaker economy and large deficits. Your thoughts?

Stephen Moore: Actually, the biggest rate cut is the one in the lowest income tax rate. The lowest income tax rate, which everyone pays, is reduced under the Bush plan from 15 percent to 10 percent. That is a 1/3 reduction in the tax rate for those at the bottom of the income scale. So it is not true that the rich get a bigger percentage tax cut than the poor. In fact, the Bush plan takes 2 to 4 million additional Americans off the income tax rolls entirely.

Monrovia, Md.: The rate comparison chart posted this morning at washingtonpost.com indicates that the proposed new rate for income over $297,301 per year is more than 6 percentage points less than the current rate, but that for income from $12,000 to $45,200 there is no change at all in the current 15% rate. Is this an accurate representation of the proposal?

washingtonpost.com: Chart: Bush's $1.6 Trillion Tax Cut

Stephen Moore: No it is not an accurate representation. Don't forget that if you make $25,000 a year, that the rate of tax you pay on your first $6,000 of income is reduced under the Bush plan. So that means, that although your marginal tax rate would not be reduced under the Bush plan, your average tax burden would go down by about $300.

Laurel, Md.: Is Bush's debate example about a waitress having a higher tax rate than a corporate lawyer actually correct?

(The waitress made about $25k and had two kids while the lawyer made $220k.)

Stephen Moore: It is correct if you take into account the payroll tax. The middle income person pays a 28 percent marginal income tax rate. And he or she also pays a 15 percent payroll tax. Add that together and you get a 43 percent tax rate. Now the rich person does not pay anymore payroll tax after they reach $70,000 of income, but they pay a 40 percent income tax rate. This means that the middle income person pays 43 percent vs. 40 percent for the wealthier person. This is why I would support cutting the payroll tax as well as the income tax. Incidentally, about 2/3 of American families pay more in payroll taxes each year than they pay in income taxes. That's unfair!

Montgomery, Ala.: Stephen, I am all for the Bush tax cut and it would be fine with me if it got larger. However, I think a major issue needing to be addressed is the Alternative Minimum Tax. The AMT at least needs to be reformed, and preferably repealed. Do you agree that the AMT needs to be addressed and, if so, how could repeal best be accommodated as part of the overall tax cut legislation? Also, although I dislike using this terminology, how much would AMT reform/repeal "cost?"

Thank you.

Stephen Moore: You've got the story exactly right. The Alternative Minimum Tax is an abomination and is hitting more and more middle income families every year. You're also right that we should outright repeal this tax. To do so would cost about 65 billion dollars a year. I believe that George W. Bush will include something in his tax plan to alleviate the AMT.

Upper Marlboro, Md.: I haven't seen much said about the effect the Federal Reserve rate increases (6) in just over a year have played in the current economic decline. If these accomplished their intended goal, i.e., slow the economy, haven't they proved excessive and a primary cause of the current problem this country is facing? Why not just wait until Greenspan, et. al., lower rates sufficiently to overcome what has transpired? Is a tax cut the real answer to this situation?

Stephen Moore: I agree that Alan Greenspan raised interest rates too much last year. We are now in a dangerous environment of potential deflation and deflation can be as bad for an economy as inflation can be. So, Mr. Greenspan was right, although late, in his latest two interest rate cuts. However, our problems are not primarily monetary but fiscal. There is a big tax drag on the economy right now. The federal tax burden has risen from 18.5 to 21 percent of GDP of the last four years. This is the highest federal tax burden since World War II. So, in sum, we need Mr. Greenspan to continue cutting rates and we need the Congress to pass a pro-growth tax cut. Don't forget, you can't create prosperity by just printing money. If you could, Bolivia would be the richest nation in th world.

Bethesda, Md.: Is now really the best time for a tax cut?

Stephen Moore: If not now, when. We finally have the stars rightly aligned for a tax cut. We now have a record federal budget surplus. We now have federal reserve chairman who says we should cut taxes. We now have the highest tax burden in 50 years. And most importantly of all, we now have an economy that is faltering. (Just look at the recent newspaper headlines of job layoffs around the country). If this isn't the right time to cut taxes, when is.
I would also point out, back when George W. Bush first proposed his tax plan a year ago, a lot of the critics said we shouldn't cut taxes because the economy might overheat. Now an overheating economy is the least of our worries. No matter what your economic philosophy is. Whether you're a Reaganite supply sider like me or you're a classical Keyseian, you should support a tax cut when the economy is doing poorly. The historical lesson of the last 100 years is that every time we have cut tax rates in this country, we have had strong economic growth. That was true in the 1920s when Calvin Coolidge cut taxes. That was true in the 1960s when JFK cut taxes. And it was true in the 1980s when Reagan cut taxes.

washingtonpost.com: That was our last question for Stephen Moore. Thank you to Mr. Moore and to all who participated.

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