While I still think there will be some agreement at the margin on estate taxes, the so-called marriage penalty, and a couple other items (and would have been if Gore were elected too), the Fed's rate cut yesterday doomed Jr's plans for a large, across-the-board cut in tax rates.
Greenspan is on record as favoring the use of surpluses to reduce debt above all else, with tax cuts implemented only if politicians can't resist spending the surplus. Dubaya recently courted Uncle Al to come out in favor of tax cuts. But the Fed has undercut GWB by delivering a definitive message with its large, unanticipated rate cut that it will do all it can to prevent a recession. That gives Democrats the cover they need to fight Jr's tax cut head on with no fear of consequences.
All of us will continue to see the economic studies trotted out showing that fiscal policy is far less successful for directing the economy over the short and medium time frames versus the the Fed's ability to move the economy quickly by tightening or loosening monetary policy. Democrats will argue very effectively that any fiscal stimulus from a cut in tax rates would have no immediate benefit versus the speed at which the Fed can regulate the economy. So it is better to use fiscal policy for long-term benefit. They will argue that the economy will benefit to a far greater degree on a long-term basis (lower interest rates, greater incentive for companies to borrower for expansion, greater prosperity for all income classes) by using the surplus to reduce government debt.
The Republicans' claims that tax cuts are needed on top of Fed action will look pale by comparison, particularly since there are no economic studies to support these claims. And the Democrats will then resort to the "fairness" argument about the cuts benefitting the rich most of all. Republicans do a pretty bad job when they start trying to offer defenses on this issue.
Major tax cuts are dead. And Greenspan killed them. Bank on it.
Greenspan is on record as favoring the use of surpluses to reduce debt above all else, with tax cuts implemented only if politicians can't resist spending the surplus. Dubaya recently courted Uncle Al to come out in favor of tax cuts. But the Fed has undercut GWB by delivering a definitive message with its large, unanticipated rate cut that it will do all it can to prevent a recession. That gives Democrats the cover they need to fight Jr's tax cut head on with no fear of consequences.
All of us will continue to see the economic studies trotted out showing that fiscal policy is far less successful for directing the economy over the short and medium time frames versus the the Fed's ability to move the economy quickly by tightening or loosening monetary policy. Democrats will argue very effectively that any fiscal stimulus from a cut in tax rates would have no immediate benefit versus the speed at which the Fed can regulate the economy. So it is better to use fiscal policy for long-term benefit. They will argue that the economy will benefit to a far greater degree on a long-term basis (lower interest rates, greater incentive for companies to borrower for expansion, greater prosperity for all income classes) by using the surplus to reduce government debt.
The Republicans' claims that tax cuts are needed on top of Fed action will look pale by comparison, particularly since there are no economic studies to support these claims. And the Democrats will then resort to the "fairness" argument about the cuts benefitting the rich most of all. Republicans do a pretty bad job when they start trying to offer defenses on this issue.
Major tax cuts are dead. And Greenspan killed them. Bank on it.