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Monday, March 01, 2004
'Work and investment? What do we need that for?'

Michael T. Darda offers some supply-side smelling salts to John Kerry, making clear just how damaging it would be to enact his retrograde proposal to reverse so much of President Bush's tax relief.

Kerry is proposing to cut the deficit in half by boosting the top two income-tax rates back to Clinton levels. This would lift the top rate to more than 39 1/2 percent from 35 percent and the second highest rate up to 36 percent from 33 percent. Presumably Kerry also would reverse Bush's 2003 tax cuts on capital gains and dividends, clearly the most powerful and pro-growth elements of the Bush fiscal repertoire.

... If the Bush tax cuts are deep-sixed, investors would only keep 60.4 cents on the dividend dollar, down from 85 cents today, a drop of 29 percent. Capital-gains investors would keep 80 cents on the dollar instead of 85, a decline of nearly 6 percent. After-tax rates of return on labor would fall by more than 7 percent for top-rate payers. The combined result would be a 32 percent reduction in the after-tax rates of return to working and investing.

If it pays less to work and invest, less working and investing will be done. At a minimum, this would slow growth.
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