WED 1A story

Area citizens ponder President Bush’s tax package

Some see economic plan as stimulus; others see potential smokescreen.

BY Gary Perilloux

Daily Journal

Does America need another tax break?

Some Northeast Mississippians questioned by the Daily Journal believe so, though others believe an economic stimulus plan unveiled Tuesday by President Bush misses the mark on long-term consequences.

Among other things, Bush proposes to boost child tax credits from $600 to $1,000, provide average tax cuts of $1,100 this year to 92 million taxpayers and end double taxation on stock dividends paid by corporations.

With removal of the so-called “marriage penalty,” 46 million American would see income taxes fall by an average of $1,716 this year. About 13 million elderly taxpayers would average a $1,384 tax decrease this year. And some 23 million small-business owners would receive 2003 tax cuts averaging $2,042 if the plan passes.

Falling business taxes sits well with Charlotte Cook, an owner of Pizza America in Tupelo.

“I think it would be good for us as a business,” she said. “But I’m not sure how much it will benefit everyone else, if it’s weighted fairly for everybody.”

Fair play

Tax fairness will be debated thoroughly by Democrats and Republicans in Congress. As an alternative to Bush’s plan, Democrats want to boost state economies with $31 billion in public works, Medicaid and homeland security spending. They’d also approach unemployment spending in a different way than Bush by extending benefits 26 more weeks. Bush would give states personal re-employment accounts of up to $3,000 a person, with bonuses paid to people who exit the unemployment rolls quickly.

Democrats propose more modest tax cuts $300 per person or $600 per working couple.

Aubrey Patterson, chairman of Tupelo-based BancorpSouth Inc. and the American Bankers Association, believes fairness is overdue on double-taxation of corporate dividends. Companies now pay corporate income taxes on earnings sent to stockholders, who then pay personal income taxes on the money again. “Speaking as a businessman and as a citizen, the double-taxation of dividends is something that definitely needs to be dealt with,” Patterson said. “And it doesn’t need to get caught up in partisan rhetoric or some sort of divisive debate. Because it’s patently unfair. “

More Americans than ever own stock, making the Bush proposal a sound one for stimulating more investment and building retirement wealth for everyone, he said. “It’s just a matter of plain fairness,” Patterson said. “That’s something that never should have been that way and it’s a proposal that hopefully will be well-received.”

Patterson said the president’s plan to stimulate business spending makes sense as an economic recovery tool.

Future consequences

A pair of University of Mississippi economists had divergent takes on the advisability of Bush’s economic plan.

Dr. Christopher Hanes, a former Federal Reserve economist, believes Bush would have included greater tax cuts for the working class if stimulating immediate spending were the ultimate goal.

“I think the most expensive part of (the plan) is eliminating the tax on dividends, which many economists believe is a good policy in itself,” he said. “But it has nothing to do with stimulating the economy. Essentially, the Bush administration is using economic stimulus as an excuse for pushing through a policy that is kind of a pet of the Bush economic advisors, particularly Glenn Hubbard.”

Hanes said lower-income people are more prone to spend in recessionary times while better-off taxpayers are prone to save the tax gains. A stronger focus on investment tax credits for business would stimulate the economy more than the dividend issue, he said.

In the long run, Hanes said the Bush plan is short-sighted by raising deficit spending at a time when the economy already appears to be leaving a recession behind. Presidential politics for the 2004 election are at play as well, he said. “It’s bad policy to lock yourself into budget deficits that will prevail even when the economy is booming,” Hanes said.

Dr. Robert Tollison, the Hearin Professor of Economics at Ole Miss, sees bright spots in the package.

“I think the key to this thing is to stimulate business investment,” he said. “That’s what they’re trying to do. And that’s a big job creator. If we can get the high-tech industry back into the business of expanding and producing and selling computers and what-not, a lot of jobs will flow from that.”

Tollison said some analysts have been skeptical of Bush administration projections that the package will create 2.1 million jobs in three years.

“But I will give the administration credit for one thing,” he said. “This is a bold and big plan. It’s bigger than the first round of tax cuts (in 2001) that he got enacted. And it is in my opinion directed at trying to get the investment side of the economy more involved. Because that’s what led to the slowdown.”

Both Tollison and Hanes agreed that a simpler tax code would help taxpayers, too.

“What I would like to see the government do is publish tax rates and raise enough money for required government services – but not make, for example, tax filing be so complicated,” Tollison said.

Investor angles

Robin Haire, an Edward Jones investment representative in Tupelo, sees opportunities in the plan for the individual investor.

“We certainly don’t want to let short-term tax implications affect our long-term goals,” he said. “But short-term, it could be the shot in the arm that the market’s looking for.”

Ending double taxation on dividends could mean companies paying 4.5 percent would raise their dividends to 5.5 percent or 6.5 percent or more, he said.

“That could be phenomenal,” Haire said. “And people who are looking for income-producing investments may move money from fixed-income investments that are really low right now to higher-paying equity investments.”

Haire said clients were asking about the implications of the plan before Bush revealed the details Tuesday. “I’ve been using it to encourage people to look at growth and income (stocks) now and to look at dividend-paying companies – with no assurance that they’ll cut taxes on dividends,” he said. “But if they do, it makes dividend-paying investments that much more attractive. And why not take the possibility of buying investments now before they go up any more in value? So we’ve been talking about it for two or three weeks. “This is a proposal. And the Democrats have got to agree with it. But it sure does look good on the surface.”