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Press Release

John Kerry’s Bad Ideas: Part 1 in a Long Series

07/01/2004

Among John Kerry’s worst proposals is his plan to reverse the dividend tax cuts for top earners. It is no coincidence that, since May 2003, when President Bush signed pro-growth tax cuts into law, the economy has been growing at an annualized rate of over 5 percent. This is the fastest pace since 1984—the year not coincidentally following big tax cuts signed by then-President Ronald Reagan.

In both cases, economic incentives were changed—and people respond to incentives. Reagan increased the incentive to work more by allowing people to keep more of their hard-earned money. He lowered the top marginal rate from 70 percent to 50 percent and then to 28 percent. Having to give 28 cents on the dollar instead of 70 cents on the dollar to the federal government made more people interested in earning extra dollars, and the economy boomed. Working became less expensive.

The Bush tax cuts of 2003, which John Kerry is threatening to repeal, made it less expensive for Americans to invest. The tax cuts lowered the government’s take on investments by about 50 percent. Since investing became less expensive, more investing has been done.

American businesses have responded by reversing a 25 year trend against offering investors dividends. S&P 500 favorable dividend activity, defined as increases and initiations of dividends, has increased by 55.2 percent over the last 12 months. In the month following the tax cut alone, 179 companies increased their dividend—the most since 1979. This sound economic activity would not be happening if the prohibitively high double tax on investments were still in place.

The Joint Economic Committee (JEC) recently reported that since the 2003 tax cuts were passed, the economy has expanded at a rate of 5 percent, after adjustment for inflation. JEC Vice Chairman Jim Saxton says, “A key factor in this acceleration of economic growth has been the recovery in business investment, which has also boosted manufacturing…the more recent turnaround of investment has led to a booming economy.” So far this year, payroll employment has increased by more than 1 million jobs.

And John Kerry wants to reverse this trend. To his credit, John Kerry was in favor of eliminating double taxation on savings as recently as two years ago. But his current stance is clear: soak those who invest in our economy. This message may resonate in some far-left corner of John Kerry’s party, but if this is a politically calculated flip-flop, Kerry’s advisors should be sure to tell him that two-thirds of voters own stock.

John Kerry is known to flip-flop, so there let’s hope he’ll flip-flop again—a flip-flop-flip-flop—when he realizes Americans do not want a president who runs for office promising to do damage to their retirement savings.