#ad#For a boom is what it is. The economy is growing, jobs are increasing, wages are up, and the stock market is rising. The tax cuts are not responsible for all of this good news, but both common sense and the timing of the recovery suggest that they have played an important role.
Republican leaders have now agreed to extend the capital-gains and dividend tax cuts until the end of 2010. All of Bush’s tax cuts would expire at that time. We would have preferred to make the tax cuts permanent the moment they were enacted. Or at least as permanent as policies ever are: No Congress can prevent a future Congress from raising taxes. The most Congress can do is to prevent taxes from going back up automatically, without a vote. Making the tax cuts permanent would merely increase the probability that tax rates would stay low. Extending them raises that probability, too, but not as much. The extension makes it a little bit easier to make economic plans for the next few years.
But we ought to do more. One of the most valuable of Bush’s tax cuts–the provision to let businesses write off the cost of investment quickly, instead of stretching the write-off over many years–has already expired. It should be reinstated. America taxes corporations relatively heavily. Growth-oriented conservatives should aim to change that.
Federal revenues have been rising very nicely as the economy grows. If extending the tax cuts–and adding to them, as we urge–causes those revenues to grow more slowly, that is all the more reason for Congress to show more spending restraint than it has. If, however, Congress continues to overspend just as before, and pro-growth policies result in slightly higher deficits, so be it. Growth is more important than budget balance. If we cut the most counterproductive taxes now, the worst-case scenario is that the deficit will cause some taxes to be raised later. And we would still be able to hope that whatever taxes were raised at that time would be less destructive than the taxes on dividends, capital gains, and corporate income.