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Willisms

« WILLisms.com '05: "Keep On Keepin' On." | WILLisms.com | Social Security Reform Thursday: Week Forty-Three-- Demographic Wave. »

Trivia Tidbit Of The Day: Part 239 -- Yay, Economy. Yay, Tax Relief.

Tax Relief & Increased Business Fixed Investment: Strongly Correlated-

Today, we have almost all the ingredients for a lasting (in the medium-term, at least) economic boom. Productivity growth is leaping upward. Hundreds of thousands of net new jobs are being created every month. The unemployment rate is falling. The federal budget deficit is declining dramatically (but remains too large). And businesses are investing for the future (.pdf):

Business fixed investment has been robust during the past two years: since the first quarter of 2003, real business fixed investment has expanded at an average annual rate of nearly 11 percent—a pace that far exceeds such investment’s long-run average and is about the same as the average rate of growth during the investment boom of the late 1990s. In particular, real spending for equipment and software has been quite vigorous, climbing at an average annual rate of more than 13 percent since the beginning of 2003.

Indeed, business activity is brisk, even in manufacturing. We hear so much about "outsourcing" and General Motors layoffs that the good news gets lost in the shuffle:

katrinahurtbutnotpermanentl.gif

Tax cuts did exactly what they were supposed to do. American businesses responded to the incentives. The economy is roaring today because of it.

Indeed, the facts do not lie:

The 2003 tax cut is about as clear a policy success as has come out of Washington in many years:

• The stock market has risen by about $4 trillion in value, and an estimated 40% of that gain is directly attributable to increases in the after-tax return on equities, thanks to the tax cut. (If the tax cut expires, the market will instantly give back those gains.) Housing values have soared so rapidly that the fear is we now face a bubble. Household net wealth has climbed by $10 trillion.

• Business investment--which had sunk into the abyss during the recession, falling by 21% between 2000 and 2002--has roared back to life. Spending is up nearly 25% over the past 30 months.

• Dividend payments to shareholders have doubled in two years, according to data gathered by the American Shareholders Association. The cumulative impact of the tax cut and the higher dividend payments has put $100 billion into the pockets of America's burgeoning investor class.

• The macro-economic signs all point to a solid, sustainable expansion. Employment is up 4.4 million and real GDP growth has averaged 4%--or twice the OECD average--since 2003. Today's unemployment rate of 5% means there are now roughly one million more Americans working than were projected before the tax cut.

• Oh, and yes, there was a $120 billion reduction in the budget deficit in 2005. That's because tax receipts rose by more than in any previous year in U.S. history, even adjusting for inflation. Receipts were up by $55 billion above projections in 2004; $122 billion above projections in 2005; and are already running well ahead of projections so far in fiscal 2006 (which began in October).

• Finally, we wonder if any of the faux debt-hawks in Congress noticed that thanks to the sizzling economy, states and localities are now running hefty budget surpluses, reversing years of red ink and painful service cutbacks. Even New York City--which for years looked like the U.S. version of debt-plagued Argentina--is back in the black.

Fortunately, in a short span, Americans have become quite a bit more optimistic on the economy:

The poll showed that 56 percent now describe the national economy as good, up from 47 percent a month ago.

No doubt about it, this is directly correlated with President Bush and his administration going on a public relations blitz on the economy.

Clearly, though, too few people have heard the message about America's economic boom. Some may have heard the message, but the message is clouded by the pessimism of Lou Dobbs, Paul Krugman, and others asserting that the sky is still falling.

Whatever.

They will do what they do. The rest of us can forge a national consensus: the economy is kicking serious tail right now, by almost any standard. And it has been kicking tail for more than a couple of years now.

So, want to derail the boom times?

Here's what you do:

Raise taxes. Or, let tax relief expire. However you want to put it.

Astoundingly, a handful of "moderate" Congressional Republicans are not entirely sold on their own signature economic policy-- and apparently some have not noticed the profoundly positive results. Many in Congress (mostly Democrats) would let dividend, capital gains, income, and other taxes creep back upward.

It's no wonder only 14% and 16% of Americans have trust in Congressmen and Senators, respectively. When they do something right (2003 tax relief), many are still willing to turn their back on it when under a bit of mild pressure.

Let's hope that Congress gives us something to trust in today.

Incidentally, isn't it funny that the same people declaring gloom and doom in the American economy are also declaring "quagmire" in Iraq?

UPDATE:

The GOP (for the most part) has backbone, after all. Way to go.

-------------------------------------

Previous Trivia Tidbit: A n Entire Jeopardy Category: "Chances".

Posted by Will Franklin · 8 December 2005 10:31 AM

Comments

ok, after the title, I was lost...but I'm taking your word for it that all of this is good news for me and my wallet.

Posted by: MacStansbury at December 8, 2005 06:54 PM

Am I dreaming or did Jay Tea from Wizbang appear on Jeapordy?...

Posted by: Zsa Zsa at December 11, 2005 08:37 AM