Teasers on the Front Page of [even the conservative] Wall Street Journal

• P.1: Congress Nears Deal to Cut Taxes by $350 Billion: In Bush Victory, Accord Reduces Rates on Dividends; Top-Bracket Relief Survives
• P. A2: Congress is at risk of passing the Great Tax Shelter Act
• P. A4: Bush is losing on the tax issue with Americans
• P. C1: The bill may let some rich investers avoid almost all levies

Here’s a nice highlight from the A2 story:

“…a rich investor might, for instance, borrow money and deduct interest payments…then use the money to buy shares of stock on which he would earn a tax-free dividend paid from profits that have never been taxed. Bottom line: The profits are never taxed, not even once, and the economy gets no new capital or savings because the investor borrows the money that he used to buy the shares.”

From the WSJ/NBC poll on A4, Bush’s overall approval is at 62%; 64% think there are better ways than a tax cut to increase economic growth (7% unsure); by a 55-36 margin, money to help pay for health care beats out tax cuts; and 53% said the 2001 Bush Tax Cut had no real effect on U.S. economic performance, with 15% saying they hurt and 25% saying they helped. Also, Lieberman, Kerry, and Gephart are all 20+% behind Bush in 2004 election polls, though a generic Democrat is only behind 47% to 32%.

From the C1 story:

“I guarantee it produces very, very low [tax] rates”, possibly even zero says Ronald Pearlman, a tax-law professor at Georgetown.

As Warren Buffet points out, the government can’t create a free lunch. Since spending, including discretionary spending, is increasing under Republican Control of the White House, the House, and the Senate, if someone pays less, then someone else has to pay more. We know who will pay less. Guess who will pay more?

AB

P.S. As these stories make clear, there is another reason that the cost of tax cut will be over $350b. I’m guessing that the costs of cutting the dividend tax to 15% were computed as (35%-15%)*($Dividend Income), while totally ignoring the substitution effect: people with the means to do so will shift money in ways to minimize their tax bills, increasing the cost of the tax cut.

X-Posted at It’s Still the Economy.