So what should the Democrats say about the Bush “stimulus” program? Should they complain about the distributional impact, asking for something less skewed toward the half-million-dollar-a-year crowd, or about the size, asking for something smaller? Neither of those seems to me to be on target.
Let’s back up and ask what we want. We want substantial stimulus now. We want fiscal relief now for the state governments and immediate aid for the long-term unemployed. We want a big one-time infusion of cash into the public health infrastructure. We want fiscal responsibility for the long term. And we won’t sacrifice any of those to make the half-a-million-dollar-a-year crowd any richer than it already is. The issue isn’t rich vs. poor. It’s doing the right thing for the economy now, and the right thing for the economy for the long run, versus rewarding campaign contributors.
Substantively, the Pelosi plan looks pretty good. (More stimulus now, and lower long-term costs, than the Bush plan.) But rhetorically, trying to outbid Bush for middle-class interest groups is a loser.
Cutting taxes on dividends makes absolutely no sense. The stimulative effect would be trivial, the efficiency gain negligible, the distributional consequences awful, and the damage to the capacity of the federal government to pay its bills catastrophic. It would also put another big hole in state and local finance by driving up municipal bond interest rates (since common stocks will now provide a competing source of tax-free income).
That has to be the basic Democratic line: “This is a stinking crock of sh*t, and we’re not having any.” Not “How about something for us, too?”
This morning’s papers are full of “Bush Proposes Plan to Stimulate Economy; Democrats Say it Favors the Rich,” instead of “Bush Proposes Another Round of Tax Cuts; Democrats Say Plan Would Wreck Economy.” Just what I was afraid of.
Brad DeLong passes along Barry Boskin’s defense of the Bush plan. There’s more justification for it than I would have thought. In particular, the fact that dividend payouts come out of post-tax corporate income but interest on bonds comes out of pre-tax corporate income generates a bias toward debt rather than equity finance, which a tax break on dividends received would to some extent counteract.
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