Lacking an economic strategy or any policy initiatives to pull the economy out of recession, the Bush government is relying on the improvement in consumer confidence brought about by the quick ending to the gulf war.
Washington policymakers are like drunken drivers. Last month they ran over 206,000 more American jobs, leaving them dead in the streets, and unemployment claims rose to 543,000 - the highest since January 1983. In its two years in office, the Bush administration has presided over the demise of the high-employment economy bequeathed by Ronald Reagan.From time to time Bush mumbles something about cutting the capital gains tax in order to spur the economy, but opponents immediately respond by trotting out the "fairness issue." Republicans flee from the fairness issue the way vampires flee a crucifix. If Saddam had had such a fearsome weapon in his arsenal, he would still be occupying Kuwait.
Bush can't make a case for a cut in capital gains. Michael Boskin, the chairman of the Council of Economic Advisers, says the administration's proposal to cut the tax rate would add $12 billion to the GNP. In a $5 trillion economy, that's not worth counting.
Moreover, opponents say a capital gains cut would lose as much in revenue as Boskin claims it would add to the GNP. Thus, the increase in GNP would have to be taxed away to keep the deficit from rising.
The claim that the rich are the primary beneficiaries of capital gains has no basis in fact. The liberal organizations that have concocted this lie have devised a unique definition of "rich" that includes lower- and middle-income people whose one-time capital gains make them rich for a year.
For example, a middle-class businessman retires and sells his business. That year the largely nominal capital gain representing a lifetime of work swells his income to several hundred thousand dollars, and he is "rich" for that year. The next year his income goes back down to middle-class levels, and someone else sells a business, becoming rich for a year.
People are not rich unless they are rich on a recurring basis.
IRS data show that people with recurring annual income below $20,000 receive a larger share of capital gains income than those earning over $200,000. Their respective shares are 26 percent and 24.6 percent. Moreover, 50 percent of all capital gains go to people earning less than $60,000.
Demagogues claim that the low-income people reporting 26 percent of all capital gains are really rich people who appear to be poor because tax shelters reduce their taxable incomes to a pittance. This claim is absurd on its face. Not only do the 2.9 million lower-income taxpayers with capital gains far exceed the number of rich people, their average capital gain was $15,147 - far too low to support the claim that any significant proportion of these taxpayers are rich people avoiding taxes on their other income.
The average capital gain of taxpayers in the recurring income class of more than $200,000 was $265,189. Thus, the rich people receiving capital gains are exactly where we would expect them, and not hidden away with the poor.
The idea that low-income people have no assets and therefore are not hurt is absurd. Many low-income people, including widows, retired people and children being educated with the proceeds of a deceased parent's estate, live on capital gains income from the piecemeal sale of accumulated property.
An administration that is too fearful to defend its own policy proposals is not capable of leadership. The lack of leadership is why the economy and our Persian Gulf victory have both turned sour.