It's the economy, stupid

Recently in Tennessee, voters mobbed the state capitol and stopped last-minute legislation to institute an income tax. A small New Hampshire town of 850 wants to secede from the state to prevent the misuse of property taxes.\n In North Carolina, 700 protesters threw a "Tar Heel Tea Party" outside the Legislature in Raleigh to protest a Democratic tax-hike proposal. Even in Massachusetts, where Al Gore won by a 27% margin, a move is brewing to abolish the state income tax.\nI often hear detached political observers say that politicians (especially Republicans) worry too much about taxes and not enough about other things. But who can blame them? With uprisings like the ones mentioned above, and our slowing economy, it's clear that people are fed up with over-taxation.\nThe numbers speak for themselves. Before the recent cut designed by President George W. Bush, tax rates, as a percentage of the GDP, were the highest they have ever been in peacetime. The typical family pays nearly 40 percent of their income in taxes after accounting for all federal, state, and local taxes. This is more than twice the rate paid by the typical family in 1955.\nThe president showed a lot of courage in pushing for, and winning, the largest tax relief package in a generation. But the war has barely begun, and the president isn't leading the charge in the next battle: a capital gains tax cut.\nMost people think of capital as money. But you have to think beyond that. Capital is also physical investment. A corner lemonade stand could not exist without capital -- the lemons and the stand are the essential capital allowing the enterprise to operate.\n"Capital gains" tax is really a misnomer. It would be more appropriate to call it the "capital formation" tax. It is a tax penalty imposed on productivity, investment, and capital accumulation. A recent study by Dale Jorgenson of Harvard University discovered that almost half of the growth of the American economy between 1948 and 1980 was directly attributable to the increase in U.S. capital formation. Capital is the engine that drives our economy, so why penalize investors for creating more of it?\nIt doesn't take a genius to figure out why capital gains tax relief will revitalize the flagging stock market and boost the economy. Even money hungry bureaucrats should love that it will actually increase government revenues. This is called a win-win.\nIn 1997 Congress was able to slash capital gains rates from 28 percent to 20 percent. The result? A booming stock market, increased productivity and business investment, and soaring government revenues from the tax. The Congressional Budget Office shows that the year before the capital-gains cut, the revenues came in at $66 billion. In 1999, the tax raised $109 billion.\nClearly, the economic evidence is in favor of a further reduction from 20 percent to 15 percent. Not surprisingly, public opinion demands it as well.\nIndependent pollster Scott W. Rasmussen reports that 72 percent of Americans think the President's tax cut was either the right size or too small. Moreover, 52 percent of Americans now invest in the stock market.\n A capital gains cut would be an immediate shot in the arm and boost the economy, just as it did for Clinton. Indeed, Clinton's popularity can largely be traced to the strong economy, which can, in turn, be traced to the capital gains cut.\nPresident John F. Kennedy had the wisdom to say in 1963 that, "The tax on capital gains directly affects investment decisions, the mobility and flow of risk capital . . . the ease or difficulty experienced by new ventures in obtaining capital, and thereby the strength and potential for growth in the economy." Bush should argue this case before Congress, or else be prepared to deal with more modern day "tea parties" like those in North Carolina and Tennessee.