West Wing Airing: Tax Cut a Good Thing

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Talk about deja vu. This week I had the chance, along with a dozen other investment strategists, to brief President Bush and Treasury Secretary John Snow on the impact of the dividend tax cuts on growth, interest rates and stock markets.

I sat in the same chair, in the same room in the West Wing of the White House discussing the same subject, as I did 22 years ago in 1981 when we were putting together the Reagan economic plan. The only difference is that I had black hair then.

The consensus of the group was that the economy is much weaker today than it was when the president announced the plan. We need a growth boost more than ever.

The strategy group advised President Bush that ending the double taxation of dividends is the single greatest thing he can do to bring back growth to the economy, improve governance in our companies, and restore confidence among investors. In our discussion it became very clear that the White House is going to fight very hard for the congressional support to get the largest stimulus plan possible, and that the administration believes the dividend tax cut is the cornerstone of the plan. Don't expect them to fold under pressure on this one.

The tax cuts in the president's jobs and growth plan will be the biggest event to hit the U.S. economy and asset markets since the Reagan plan in 1981. The most important element of the plan is ending the double taxing of dividend income that has given America the highest taxes on capital in the industrialized world. It would work by raising the after-tax return on capital by nearly two-thirds.