Reading the picture in the economic tea leaves

Earlier this month, the president proposed a bold ten-year $674 billion stimulus plan, the centerpiece of which is an elimination of the tax on stock dividends. The idea behind this is to facilitate an increase in business and consumer confidence that would improve the health of the stock market, now in its third year of a decline that began during the final months of the Clinton presidency. The remainder of the Bush plan focuses on a combination of income tax cuts, money to help the unemployed, as well as other tax relief for married couples and parents.
Clearly, only the fates can answer whether or not the elimination of the tax on dividends will actually do what it is intended to do. Nevertheless, IRS data shows that while 25 percent of tax filers claimed stock dividend income, 63 percent of that income went to individuals with incomes of $100,000 or more. This lends credence to criticism that in terms of real dollars, this portion of the plan provides most of the benefit to upper-income households. In light of this, a crucial point is being missed: regardless of the actual benefits of this or any economic plan, a president’s only real economic weapon is the belief by the public that he’s doing something to help, even if that something doesn’t amount to much tangible evidence at all. In this sense, Bush has made a very shrewd political move even if the stock dividend tax remains in place, as it most likely will.
Congressional Democrats for their part have presented a plan of their own which amounts to a $136 billion stimulus package consisting of tax rebates as well as aid to the states, which they claim would all be implemented this year. Quite typically, their criticism of the Bush plan focuses on a traditional “class-warfare” strategy, claiming that the entire Bush plan “unfairly” benefits the wealthy. This strategy is old, tired, and won’t work for them now any better than it ever has. Hidden under all their rhetoric, however, is their real strategy: politicizing the economy for the 2004 election. That’s why their plan only focuses on the short-term economy instead of the long-term as the Bush plan does. Just as in 1992, it’s still “the economy stupid.” Unfortunately for the Democrats, Bush knows this too.
Scott Wacholtz is a senior majoring in Computer Science.