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Edited on Mon Aug-09-04 11:01 PM by noahmijo
I know some of you Economics majors and specialists may look to rip me on this (I'm not an Econ major) but I did get an A on it, and my teacher is a Republican! (he was a really nice guy though who I must say was fair to even us liberals in the class and honestly I suspect he isn't going Bush this year)
But to anyone who may be curious who doesn't study economics you might find this a little interesting.
Anyways here it is:
Topic: John Kerry’s Economic Policy
The core of John Kerry’s economic policy lies in the belief that he will repeal tax cuts for the richest. His ultimate goal with this policy is to halve the deficit within his first term if elected. “He will cut excesses in government and reign in out of control spending. And he will implement the McCain-Kerry commission on corporate welfare to undermine the special interest groups that make it hard to cut tax loopholes and pork barrel spending projects.” (John Kerry)
The central points in Kerry’s plan for rolling back the tax burden on middle class families lie in personal income, child and marriage credits, and education credits. “Specifically, he wants to protect the increases in the child tax credit, the reduced marriage penalty and the new tax bracket that helps people save $350 on their first level of income.” (John Kerry) Essentially rather than achieve a “trickle down” effect, Kerry proposes to implement a system where everyone from the majority to the largest spenders gives the economy a boost.
A vital component to this plan also lies within the education credit and Kerry’s “Service For College Plan. Kerry proposes that college student hopefuls would be given the option to serve their community or country for two years in exchange for the cost of tuition at a four-year public college. This is assuming the cost of tuition per semester is $4,000 or less. Essentially this plan is based on the fact that college grads earn far more than non-grads. The more college grads in the country, the more spending and demand will occur. Assuming noticeable growth occurs in human capital, the supply side would get a boost as well.
Critics of Kerry’s repeal of the tax burden on the middle class claim that this plan could backfire in a few ways. James Antle from the Intellectual Conservative writes, “Some two-thirds of those paying the highest tax rates are small business owners, a group responsible for much of the job and wealth creation in our economy.” Thomas E. Nugent, essentially claims that raising taxes on the richest won’t necessarily equal the expected tax return. There is a certain rate at which the consumer will cease to spend, thus reducing the amount of the actual tax collection. “For individuals in the normal zone, an increase in tax rates does produce an increase in revenues, as they are not motivated to take actions to offset the tax-rate increase. “ (National Review) Overall, according to this
statement, the deficit could actually increase rather than be decreased as Kerry aims to do.
Another issue critics see is the fact when two adults who may be individually “middle class” but together they could fall into the “rich” tax bracket. “Yet Kerry seems to be of the impression that tax increases on those he defines as wealthy apparently families with annual incomes above $90,000, which would mean that a police officer could marry a schoolteacher and they would qualify.” (Int Conservative) Obviously a married couple with typical high school educations could pull a combined income of approximately $90,000 especially in larger high-income cities such as New York. Typically business owners of small firms pull in far more than $90,000. Kerry’s tax initiative appears to be harming potential growth in order to give way to what he believes will bring revenues through a higher incentive to produce or consume.
Overall if we were to go by economic numbers Kerry’s economic plan to cut taxes for the wealthiest may not the most prudent move. The Intellectual Conservative claimed that Kerry defines the wealthy as those who make an income of $90,000. The USA today reported that Kerry would repeal tax cuts for those who make $300,000. This was his solution to help fund the $87 billion request for the Iraq War. It appears to me that Kerry favors Keynesian supply side economics in the sense that he believes cutting taxes for the middle class and offering more incentive for education and controlling the cost of health care. I believe these policies could help boost the economy, but it’s still questionable as to whether or not it would happen within a short-term period of time as many people expect. He wants to encourage a larger output of human capital that would result in stronger production. The health care initiative would encourage employers to provide these workers to keep them protected which gives the workers incentive to put in their maximum efforts rather than holding multiple jobs to afford good healthcare. In short he’s giving an incentive to increase production by increasing human capital in the form of educated Americans.
Pending that Kerry’s “repealing tax cuts for the rich” means those individuals making well over $2-300,000 and not those who struggle on a $50-$70k salary, we could see a general boost to an economy. As far as two middle class people marrying to justify a “wealthy class” combined income Kerry’s plans to reduce the marriage penalty is likely to deal with this issue citing a “$350 on their first level of income” (johnkerry.com). Kerry also calls for providing tax cuts for sole proprietorships. Since partnerships are taxed the same way as sole proprietorships this tax break would likely apply to them as well. Kerry also proposes tax credits for businesses that purchase energy saving equipment and the ability to write off technology purchases immediately. These initiatives combined with cutting the cost of health care for small business owners by 1/3 should ensure strong growth and support for venture capitalists and the entrepreneurially minded.
I find it hard to believe that reversing the original tax on the wealthy would cause the wealthy to spend less as the National Review claims. A millionaire for example who may “only” retain a few million dollars after taxes is not likely to be dissuaded from purchasing as strongly. Likewise an individual keeping $150,000 as discretionary income is not likely to turn away the notion of consuming high cost goods and services.
Ultimately, Kerry’s economic plan should produce economic growth in the long run.
(PS I am aware that the number is now $200k not $300k as ABC had reported it at the time I wrote this paper)
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