Magazine

Tax Cut Folly in Washington


The tax-cut debate going on in Washington is degenerating into farce. A simple corporate dividend tax cut that was originally proposed to simplify the tax code, lower rates, improve profits, increase stock valuations, and boost the market is turning into something that does none of those things. In its drive to get something passed before the next Presidential election, the Bush Administration is transforming a good idea into a joke.

Originally, the plan called for investors to enjoy tax-free dividends and capital-gains taxes as long as a company paid tax on its earnings. The dividend tax cut would cost $400 billion over 10 years. But now, there is talk of phasing it in over three years, and letting it expire after five. The "sunset" provision allows the Administration -- and Congress -- to pretend that the cost of the tax cut amounts to only $120 billion. The cost of that fiction is that it increases the complexity and uncertainty of the tax code for corporations and individuals without providing long-term incentives for growth.

There are no free lunches in cutting taxes. The hope that "dynamic scoring" would show that tax cuts pay for themselves via higher growth is gone, disproved by studies from the Congressional Budget Office and Congress' Joint Committee on Taxation. Taxes are about choices -- what you get and what you give up, who benefits, who doesn't. Let's be honest about this and stop playing games.


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