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More Money, No Problems


If it's that simple, why not cut taxes permanently?

Consumers are spending their tax rebates, cash registers are ringing and all is (temporarily) right with the world.

Consumer spending increased 0.8% in May, the biggest increase since November, the U.S. Commerce Department reported Friday.

Incomes grew 1.9%, the largest increase since September 2005, and inflation was lower than expected.

This suggests that tax rebates goosed the economy as hoped. The downside: It's almost certainly only a temporary yelp as rising fuel prices take an ever-larger bite out of household budgets.

Here's a thought: Why not make President Bush's tax cuts permanent, so folks have more money in their pockets to spend and -- who knows -- even to save and invest?

If a little extra spending money is a good thing, why not a lot every year? After all, whose money is it?

Don't hold your breath. The pols in Washington are again trying to buy our votes with our money - and betting that we'll thank them for the privilege.

Never mind that the sainted John F. Kennedy cut taxes and the economy boomed. If you're a politician looking to expand your majorities in Congress and recapture the White House in November, even discussing a permanent tax cut would be a tacit admission that… ugh, it's too horrible to even contemplate. And that other guy, the former Navy pilot, freely admits that he's an economic illiterate.

Addressing the Economic Club of New York in December 1962, Kennedy said:

"The final and best means of strengthening demand among consumers and business is to reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system – and this administration pledged itself last summer to an across-the-board, top-to-bottom cut in personal and corporate income taxes."

Kennedy, a Democrat, sounds like an ardent supply-sider and tax-cutter. He continued:

"I'm not talking about a 'quickie' or a temporary tax cut, which would be more appropriate if a recession were imminent. Nor am I talking about giving the economy a mere shot in the arm, to ease some temporary complaint. I am talking about the accumulated evidence of the last five years that our present tax system…exerts too heavy a drag on growth in peace time; that it siphons out of the private economy too large a share of personal and business purchasing power; that it reduces the financial incentives for personal effort, investment, and risk-taking. In short, to increase demand and lift the economy, the federal government's most useful role is… to expand the incentives and opportunities for private expenditures."

Imagine that.

Kennedy got his tax cuts, and the economy grew for 106 months in the 1960s, the largest expansion until the 120-month boom in the 1990s sparked by -- you guessed it -- another round of tax cuts. Tax revenue increased by about 65% from 1965 to 1970 and approximately doubled following President Reagan's tax cuts.

Unlike today's politicians, Kennedy didn't play class warfare:

"For all these reasons, next year's tax bill should reduce personal as well as corporate income taxes: for those in the lower brackets, who are certain to spend their additional take-home pay, and for those in the middle and upper brackets, who can thereby be encouraged to undertake additional efforts and enabled to invest more capital."

This time, consumers are using their tax rebates to buy electronics, furniture and clothes. That's good news for Sony (SNE), Philips Electronics (PHG), Ann Taylor (ANN), Macy's (M), Target (TGT) and Wal-Mart (WMT), but no one expects the increase in consumer spending to last.

A permanent tax cut would spark long-term investment and bedrock companies such as Intel (INTC), Dell (DELL), Hewlett-Packard (HPQ), Microsoft (MSFT) and IBM (IBM). The entire economy would benefit.

Clearly, it isn't politically correct to say that Presidents Kennedy and Reagan were right about tax cuts - let alone that Yalie who speaks English like a second language and calls Crawford, Texas home.

But as today's politicians blather about "investment" (i.e. new and higher taxes), wouldn't it be smart to ask if they remember what their predecessors, both Democrat and Republican, did to spark solid, long-term economic growth?
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