What Congress Giveth …

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The New York Sun

Some Americans, quickly losing track of the ballooning hurricane aid packages sailing through the Congress, might have begun to wonder how the solons are going to ask us to pay for it all. Well, now we know, and the news isn’t good. Rather than exercising a modicum of fiscal discipline and tightening their belts, our allegedly Republican legislators appear to be contemplating tax increases.


Republicans say they are simply delaying action on moves to make President Bush’s capital-gains and dividends tax cuts permanent and claim they’ll revisit the issue later this fall, but the risk of inaction grows every day a vote is put off. And inaction would result in an effective tax increase. In 2004, the first year after the cuts were enacted, the president’s plan reduced tax bills for 24 million households by an average of about $950, according to the Securities Industry Association, a trade group.


Not to mention the extra dividend payments these cuts have spurred. According to the association, dividend increases from the beginning of 2004 equaled combined increases between 1994 and 2002. The association conservatively estimates that the tax cuts spurred the creation of $690 billion of shareholder value between May 2003 and November 2004. Given the strain the hurricane has already put on the economy, now hardly seems like the time to hem and haw on ensuring that the tax cut benefits continue.


The supposed “elephants” on Capitol Hill seem to have short memories, so they’ll need reminding about what happened the last time the country faced an enormous economic crisis. In the wake of September 11, the president and a more courageous Congress stuck to the $1.35 trillion tax cut package enacted in June 2001, and even pushed ahead with more cuts in 2003 and 2004.


Some of those cuts could already be helping the economy weather Katrina. The American Shareholders Association recently released a scorecard of the 2004 tax cuts that found that a provision allowing a one-time repatriation of corporate profits earned abroad could create as many as 666,000 jobs in 2005. Compare that to the 400,000 jobs the Congressional Budget Office recently estimated could be lost as a result of the hurricane.


The eventful weeks since Katrina have spotlighted the economy’s remarkable resilience. Congress should contemplate the causes of that resilience before it risks ending the surge through inaction on tax cuts. If lawmakers want to ease the budgetary pressure arising from hurricane aid, they could revisit some of their recent spending decisions. The majority leader in the House, Tom DeLay, this week defended deficit spending by arguing that there is no fat left to trim in the federal budget. We suggest that Mr. DeLay and his colleagues read the $286 billion highway bill they passed but a month and a half ago. If a tax increase is the best way they can think of to deal with unexpected hurricane spending, the damage from Katrina will cascade throughout the economy in ways far worse than what we’ve seen so far.


The New York Sun

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