TCS Daily


Economic Jujitsu

By Nick Schulz - March 10, 2003 12:00 AM

If there is anyone left who doubts the political acumen of the Bush administration, the recently proposed economic stimulus package should put those doubts to rest. The White House has designed a tax plan that would provide the most benefit to "blue" America - those parts of the country that voted overwhelmingly against George W. Bush in 2000.

After floating a series of initiatives designed to get the nation's economy humming again, the administration's plan was, not surprisingly, attacked by several prominent Democrats.

After Bush delivered his State of the Union address, California Sen. Dianne Feinstein called the proposal "the wrong plan at the wrong time." Presidential aspirant Sen. John Kerry of Massachusetts criticized the man he hopes to unseat in 2004 as clinging "to failed economic policies that make special interests happy while nearly two million Americans have lost their jobs." And another Oval Office hopeful, Sen. Joe Lieberman of Connecticut echoed that refrain, saying the Bush plan with its "huge tax cuts" is "not a formula for prosperity, it's a recipe for economic decline."

That sounds like routine partisan boilerplate, but the potential political problem for these critics is that the Bush plan will give the greatest boost to the very states that Sens. Feinstein, Kerry, and Lieberman represent.

Dr. Steve Cochrane is the senior economist at Economy.com, a respected financial website. In a recent analysis of the Bush plan, he pointed out that "the Northeast and the West stand to gain the most from President Bush's proposed stimulus package.

"Given that the Northeast is arguably the weakest economy at the moment, the collection of tax breaks and the extended unemployment insurance would provide some needed support for this struggling region." As for the areas where Bush enjoyed strong electoral support, "the Midwest and the South would enjoy a more modest economic boost," Cochrane says.

Bush also has pushed hard to accelerate the phase-in of already-passed tax cuts. In his State of the Union address, he challenged Congress, telling assembled members they "have already passed all these [tax rate] reductions, and promised them for future years. If this tax relief is good for Americans three, or five, or seven years from now, it is even better for Americans today."

Again, accelerating the income tax rate reductions promises to benefit most Americans living in parts of the country where Bush has the least political support. "The accelerated reduction in personal marginal tax rates," Cochrane says, "if accompanied by an immediate reduction in tax withholding schedules, would provide the greatest benefit to ... the Northeast, California and Illinois." That's Gore blue, blue, and blue as far as the eye can see.

And as for the big enchilada in the Bush economic proposal - the move to end the double taxation of dividends? Well, economists largely agree that this step might not provide much near-term stimulus. And some have also called it a sop to the rich.

But again, eliminating that double taxation will help areas of the country where Bush is weakest politically.

"The long-term benefit [of ending the double taxation of dividends] would accrue largely to households in the Northeast," Cochrane says. "According to the Statistics of Income from the Internal Revenue Service, households in regions with large retiree populations, such as Florida, households in high-income states in the Northeast, and households with a high propensity to own dividend yielding stocks in the West, derive the largest share of their income from dividend earnings."

Whatever the objective merits of the Bush economic proposal - and there's much one can quibble with - it is a striking bit of political jujitsu. It puts Democrats representing states that did not support Bush in 2000 in the awkward position of criticizing a proposal that will benefit their constituents more anyone else in the country.

In fact, if Democratic critics go overboard in cutting up the White House's tax reduction plan, they risk cutting benefits for their constituents - and thus their own political necks.
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