Ravengate
Partners - Stock market, economic and political commentary by Patricia Chadwick

It is good to see that the President has bipartisan support for the budget proposal to give tax incentives to small companies in this country.

Over half of the workforce in this country is employed by small companies and most of the job creation comes from small and new companies. Tax relief such as recommended in the bill, will help in spurring private sector growth and pulling the economy out of the recession.

However, if simultaneously, the Government turns around and raises income taxes on individuals or corporations, the overall economic benefit will be non-existent.

The Federal Government cannot endlessly pour money into the economy to create new jobs. Sooner or later it must let the private sector take over. As the Federal support is withdrawn, the private sector needs to be given incentives to take risks and make investments. Raising income taxes will have exactly the opposite effect.

During the late 1990s, when the Federal Budget went from deficit to surplus, it was after President Clinton had cut the capital gains tax. What ensued was a strong wave of capital investment and corporate profits growth both of which generated huge incremental tax revenues – both income and capital gains – for the Federal Government.

Admittedly, the deficit turned surplus of the 1990s was augmented by the sharp cut in defense spending by the Federal Government, not an option on the table today. However, despite the vocal concerns of many pundits, primarily on the far right, the level of the U. S. Government debt and even the very high current budget deficits, should not necessarily doom us to third world status.

What we need in this country is private sector growth, not Federal Government loans injected into the economy. The Federal Government should do all that it can to augment and support the private sector, so that it can remove itself as the agent of stimulus. Only then will hiring commence and personal income start to grow.

The new year has witnessed the political rhetoric become pointedly directed at the economy. Not surprisingly, the Democrats, aggressively led by Senate Majority leader, Tom Daschle, are now blaming Republicans for creating a budget deficit with the tax package that was passed in the spring. That tax package was not only appropriate but it was good (not bad) economics. Even more astonishing has been the performance of President Clinton’s one-time national economic adviser, Laura D’Andrea Tyson. On television a few days ago, she actually blamed the current recession on the tax cuts put into effect last spring. Where was she when President Clinton was cutting the capital-gains tax?

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