What the Bush tax cuts mean for South Dakota

What the Bush tax cuts mean for South Dakota by Ron Williamson, president, Great Plains Public Policy Institute Members of our congressional delegation delight in putting out press releases extolling the amount of federal dollars they bring to our state. Of course securing Uncle Sam�s dollars for the folks at home is a time-honored tradition. The practice of congressmen bringing home the bacon dates to the earliest days of the Republic.

But what if there were a federal program that delivered millions of dollars to our state, $27 million in the next three months alone? An obvious �Yes� vote for any S.D. Member of Congress, right? Wrong. Congress held such a vote late last month and the S.D. delegation split cleanly among party lines � the Republican voted for it and both the Democrats voted against it. What is the program? It is President Bush�s tax cut, which goes by the tongue-twisting title of the Jobs and Growth Tax Relief Reconciliation Act of 2003. The president signed the bill on May 28th.

The $27 million comes from just one provision of the new law, increasing the Child Tax Credit from $600 to $1,000 per child. On July 25 the IRS will begin mailing checks of up to $400 per qualifying child to 69,000 families in our state. Nationwide, some 25 million families will receive checks. This is not a handout. Recipients will merely be receiving back their own hard-earned money.

The bill contains further provisions that will help the people of our state. Ninety-eight thousand married couples will be better off because of the reduction in the marriage penalty. Sixty thousand South Dakota taxpayers will see a reduction in the double taxation of their dividend income. 180,000 residents will benefit from the expansion of the 10 percent tax bracket, and 44,000 will gain from the across-the-board reduction in higher tax rates.

Many people in South Dakota will see their federal income tax obligation reduced to zero. Nationally, some three million taxpayers will be removed from the tax rolls.

There are a number of policy advantages to letting people keep more of their own money.

Cutting tax rates is efficient. The same money doesn�t have to be carried in a leaky bucket all the way to the nation�s capitol and back again.

It is fair. Federal officials don�t get to pick winners and losers. Money from tax cuts goes directly to the people who earned it in the first place.

It is responsible. Limiting tax burden disciplines our elected representatives to set clear priorities in government spending, and pay only for things that truly serve the public interest. When tax revenues seem unlimited, there is always a temptation to create new programs and lock in higher spending for the future.

We often hear about how �massive� the Bush tax cut is. Yet in historical terms the president�s tax cut is actually quite modest. The Reagan tax cuts of 1981 and John F. Kennedy�s tax cuts of 1964 were about three to four times larger in relation to the size of the economy in those years than what Bush proposed earlier this year.

And the version Congress ultimately enacted is even smaller than what Bush first proposed. Overall, the Bush tax cut will reduce the $27.9 trillion in tax revenue the federal government is projected to collect over the next 10 years by a little over 1 percent.

Still, for those who strongly oppose the new tax policy, there is a simple solution; don�t take the cut. The law sets the minimum amount each person much pay in tax, but it doesn�t impose any upper limit. People who don�t agree that taxes should be reduced can simply calculate their taxes based on the previous rates and send in that amount. Tax increases are mandatory, but tax cuts are always voluntary.

Overall, the economic boost our state will receive under a policy of tax cuts is a vastly greater stimulus to jobs, growth and investment than anything that could be gained through traditional spending on targeted projects. And unlike one-year federal money, reducing the tax burden will benefit the people of South Dakota for years to come. Now that�s worth a press release.

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