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Will Bush’s Tax Cut Stimulate the Economy, Create New Jobs?


Gregory J. Rummo

As the debate over the president’s tax cuts heat up, it is clear there are two major points of contention: Will it stimulate the economy creating new jobs? And is it fair that the largest portion of a tax cut be given to “The Rich?”

“The Rich” (read “The Filthy Rich”) is a phrase invented by Democrats who have decided they can get more votes by vilifying Americans who pay the most in taxes every year than to honestly identify this group as “those hard-working Americans in the highest tax brackets.”

It is mathematics—not a question of morality—that in an across the board tax cut, those who pay the most in taxes will get the largest reduction. Similarly, those who pay little or no tax, get little or no reduction.

Try singing the Billy Preston tune, “Nothing from Nothing,” if you struggle with this concept.

The truth about which Americans pay the most taxes is breathtaking.

The Internal Revenue Service records for 2000 reveal that over 50 percent of the tax revenues the Treasury received were paid by the top 5 percent of wage earners. (67 percent was paid by the top 10 percent of wage earners; 84 percent by the top 25 percent; 96 percent by the top 50 percent.)

Who says “The Rich” aren’t paying their fair share?

In many cases, “The Rich” are not as Webster defines those who “possess great material wealth.” The majority in the group that pays 96 percent of taxes have incomes below six figures. Many are small business owners—employers—and in a position to use a tax cut for reinvesting into their businesses for things like replacing or upgrading equipment or hiring people.

Because the U.S. economy is driven by consumption, anything that places more money into the hands of those most capable of spending it and investing it will ultimately help buoy everyone’s boat.

But is the president’s tax cut large enough and will its effect be felt soon enough by those who recently lost jobs? That’s a tough question—especially for those among the ranks of the unemployed, now hovering at 6 percent.

George managed the quality assurance department of a mid-size software development company. He has been out of work for several months and prospects of finding a new job in his field don’t look good. He has been spending his time networking by calling friends and associates. He has also applied for jobs on the Internet.

“The last two human resources people that called had 100 and 70 resumes in front of them respectively. That makes the odds of getting a job a little low,” he said.

Steve is an engineer. He was recently laid off from his job as a sales representative for a scientific instrument manufacturer. He was less talkative but equally frustrated over the prospects of finding another job. Although he has been able to uncover several opportunities in his line of work, none offered anywhere near the salary he should be making with his experience.

Both of these guys have a wife, three children and a mortgage.

George doesn’t blame President Bush for the circumstances resulting in the loss of his job. “I think it would be an over-simplification to try and pin this sluggish economy on one person,” he said.

When asked what he thought Washington could do to help him find another job, he said, “Anything that spurs job creation. However, I must say that I don't look to the federal government for much of anything.”

And herein lies a truth. The U.S. economy is dependent on many factors. Fiscal intervention by the federal government is only one of them.

A tax cut is a short-term stimulus—a kick start—to get things moving in the right direction. Businesses then must take the ball and run with it, building economic momentum.

But if consumers and business owners are worried about the future then they will lack the confidence to invest and spend.

The president understands that consumer and investor psychology is an important factor in economic growth. Consequently, the security of the homeland and the systematic dismantling of terrorist groups worldwide are his top priority. The bleak numbers reported by the airline industry provides a convincing case that the fear of terrorism translates directly to the erasure of both corporate profits and jobs. And the bleaker economy in New York City—where unemployment is up to 8.5 percent (11 percent in the Bronx)—is a direct result of the terrorist attacks on 9-11.

But there are some factors that are out of everybody’s control.

The economy is cyclical. The Hi-Tech boom during the 90s that sent the NASDAQ spiraling upwards and made paper-profit millionaires out of taxi cab drivers led to over-spending, over-hiring, and over-capacity. We are still paying for those excesses but the worst is over and many companies are reporting earnings and offering rosy forecasts.

The stock market is usually a good indicator of what lies ahead. Recent upside moves in both the Dow Jones Industrials Average and the NASDAQ auger well for the future. But often these bullish advances occur months before an appreciable economic upturn—the kind that causes companies to hire people.

Can people like George and Steve hang on that long?

“I’m doing a lot of praying, too,” George said.

Gregory J. Rummo is a syndicated columnist. Contact him at

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