TCS Daily


Bad for Business

By Christopher Morris - March 28, 2003 12:00 AM

President Bush will have to work very hard to reverse last week's Senate vote to slash his tax cut plan. If Congress cuts the President's request in half the Democrats can thank a coalition of nonprofit groups calling itself "Fair Taxes for All." And they can thank the corporations that make philanthropic contributions to these groups.

Led by People for the American Way, the organization includes over 172 mainly tax-exempt groups, from Martin Sheen's online anti-war group "MoveOn.org" to the feminist Ms. Foundation.

Now don't assume Fair Taxes for All (FTFA) defines "fair" as taxing all citizens at the same rate or cutting your taxes in proportion to the size of your tax burden. No: FTFA worries that new tax cuts will "inequitably distribute the benefits they provide."

Come again? The U.S. economy has had two quarters of negative growth in 2001 and anemic growth ever since. The unemployment rate continues to climb from a low of 4 percent in early 2000 to 5.8 percent now. The economy is long overdue for growth, but FTFA is concerned about how benefits are distributed. It's focused on slicing-up the economic pie when most Americans want policies that will allow it to grow larger.

True Stimulus

The President's proposal has two key features. It will accelerate the phase-in of previous tax cuts passed in 2001 and eliminate the double taxation on dividends. These measures lower the cost of doing business and allow workers to keep more of their income. They are strong incentives to work and invest, which will generate real economic growth.

The tax cut on dividends is especially important. People need an incentive when they take the risk of investing their hard earned money in business. And one good incentive is to let them know that they will not have to pay a tax on any dividend payments they receive. The more people invest in business, the more jobs business can create.

By contrast, FTFA advocates a "short-term stimulus" plan that is supposed to get consumers to spend a little more money now, not invest their savings for the long run.

Shooting Self in the Foot

A number of major American corporations have lavished their philanthropy on groups in FTFA. Between 1998 and 2001, 29 groups in FTFA received a total of $13.5 million from more than a dozen corporations. Many of these corporations have had to lay-off workers, yet they fund FTFA, which opposes pro-growth and job-creating tax cut policies.

ACORN-the Association of Community Organizations for Reform Now-is a member of FTFA. ACORN activists shake down banks for contributions by threatening to push for federal regulations. The tactics work. ACORN received over $1 million in grants (1998 - 2001) from the corporate foundation of the financial powerhouse JPMorgan Chase. Last fall JPMorgan Chase announced it was reducing its investment banking staff by as much as 20 percent. Perhaps some of those laid-off staffers were investment analysts who could have told the company's executives that their philanthropy was mistaken.

And between 1998 and 2001, the Bank of America gave FTFA members $245,000; Citigroup gave $170,000; DaimlerChrysler gave $650,000; and UPS contributed a whopping $1.3 million. Each corporation also has announced job cuts; DaimlerChrysler cut 26,000 jobs.

The Fortune 500 companies who sponsor Fair Taxes For All ought to know that they are helping FTFA become a powerful political force working against economic growth. The corporate executives who let this happen are neglecting their responsibilities to their shareholders. They are not acting in the best interest of their employees. At best they are helping spread the misery, equally to all.

Christopher Morris is a research fellow and David Riggs is senior research fellow at Capital Research Center.
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