Voodoo Economics at Heritage Foundation

So the Heritage Foundation is commenting on the good and bad in the stimulus package that has been reported in the press. I am going to focus on one part of it.

An even better approach would have been to extend the pro-growth elements of the 2003 tax cuts, which reduced taxation of capital gains and dividends. Those tax cuts and the bonus depreciation helped spark the economy in the latter part of 2003. Since investment is forward-looking, many businesses are in the process of making investment decisions for 2011 and beyond. Permanent reductions in the cost of capital would help the economy by eliminating the uncertainty that businesses face when making investment considerations.

Ah, the push to make the tax cuts permanent, how very predictable. In fact we heard the same thing when they were more optimistic on the economy just one year ago.

Although PAYGO may prevent new entitlement spending in the 110th Congress, lawmakers should rework the rule before 2010 so that it does not prevent extensions of the tax relief passed in 2001 and 2003. A massive tax hike like the expiration of these tax cuts would do lasting harm to the economy and threaten the jobs market. In addition, higher taxes on dividends and capital gains would likely depress the stock market, where most retirement savings are invested, and so an ill-conceived PAYGO rule could increase retirement insecurity at the very moment when many Americans can least afford it.

What I am very unclear with is how promoting investments for 2011 and beyond is going to boost the economy now?

-Josh

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