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How to Win On 1 Percent
Answering Gore's assault on the Bush tax plan.


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Larry Kudlow

George W. Bush may have won the debate on style last week, but he often was beaten on policy, especially when it came to Al Gore’s charge that his tax plan is skewed to the wealthy 1 percent of taxpayers. Bush cannot allow Gore to run all over him with the same argument tonight. Here are the themes Bush should emphasize in answering Gore’s assault on his tax plan:

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1) EVERYONE. Across-the-board tax-rate cuts promote economic growth and expand the economic pie for everyone. To make this point, Bush needs to make the connection between tax cuts and expanded economic prosperity.

2) MORE REVENUE FROM THE RICH. Since upper-income taxpayers pay about a third of tax revenues, any across-the-board cut will give them about a third of the relief — this isn’t favoring them, it’s just even-handed. Bush should keep saying that. Also, history shows that when wealthy taxpayers get lower rates, they pay an even greater share of tax revenues; before the Reagan tax cuts, the top 1 percent paid about 18 percent of revenues, by 1988 it was 28 percent, and after the 1997 cap-gains tax cut, their share moved up to 33 percent. (Nota bene: The top 1 percent are not all “millionaires” as suggested by Gore — the category includes people making about $250,000).

3) CHANGE THE NUMBERS. The fact is that 6 million lower-to-middle-income taxpayers get a 100 percent cut in their income-tax bill. In contrast, wealthy taxpayers get about a 10 percent reduction in their bill. Also, the tax cut isn’t for the wealthy 1 percent, but the working 100 percent.

4) DON’T KILL THE GOOSE. Wealthy taxpayers have the highest saving rates. In a real sense, their income is actually investment capital. They provide the seed capital for the creation of new business start-ups, especially in the high-tech sector, the very backbone of the new Internet economy and the source of jobs for millions of middle- and lower-income people. (New and small businesses create over 80 percent of the new jobs.) Tax policy should not discriminate against the geese that lay the golden eggs.

5) EQUALITY. Joe Lieberman said last week in the vice presidential debate that God created all of us equal. That should go for not just gays, but upper-income taxpayers. Bush should talk about fairness in these terms (see the Founding Fathers and Declaration of Independence).

6) SAVING SOCIAL SECURITY. Tax cuts improve rewards and incentive for capital formation, which in turn leads to greater productivity. As the economic pie expands, there will be more payrolls to throw off more revenues to fund Social Security, thereby easing the transition to personal retirement accounts. In effect, there is no danger of Social Security going bankrupt if the economy grows at 3 or 3.5% a year (Gore essentially made this point in last week’s debate). Another way to look at it: In the future, two workers will be asked to finance each Social Security beneficiary. The trick is to make tomorrow’s two workers as productive as today’s three workers (a 3-to-1 worker-to-beneficiary ratio is the break-even point for the trust fund). Tax cuts will promote the growth and productivity to make that happen.

7) THE TAX-CUT BOUNTY. In sum, tax cuts foster more capital formation, raise living standards, improve productivity, create jobs, increase payrolls, and thereby supply higher and higher revenues to fund Social Security and the transition to personal retirement accounts. What’s not to like?

8) THE CONTRADICTIONS OF AL GORE. Al Gore likes jobs, but dislikes the businesses that create jobs. He likes productivity, but dislikes capital investors who are crucial to productivity. He likes prosperity, but doesn’t want anyone to get rich. Bush should hammer away at this. Gore’s new Great Society will reduce future growth and prosperity, harming everyone. Because a rising tide lifts all boats, Bush’s tax-cut plan will raise living standards and help everyone — there’s that word again.



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