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sent 23 January 2001
Re: "The Tax Plan," by Richard W. Stevenson, New York Times, 23 January 2001.


To The Editor:

There is growing bipartisan support for a tax cut, in recognition that the surplus has generated a recessionary bias ("The Tax Plan," Richard W. Stevenson, January 23, 2001). The current plan would reduce taxes by either $1.3 trillion or $1.6 trillion over 9 or 10 years, depending on who does the counting. But tax cuts far into the future will not help the economy now, when spending by households and firms is collapsing. Given the likely shortfall of demand over the coming year, the fiscal adjustment that will be required is on the order of $450 billion per year. At most, the Bush administration will propose a $150 billion cut for next year. We support his proposal, but call for an immediate phase-in and for an additional $300 billion of tax relief annually. About half of that should come from a payroll tax cut (on both employers and employees), increasing the incentive to work and reducing pressures to downsize the labor force. Another $150 billion would come from retroactive tax refunds (say, $250 per taxpayer per year for tax years 2000 and forward), increases to the earned income tax credit, and additional tax credits for child care, health care, and education expenses.

Mathew Forstater
Director
Center for Full Employment and Price Stability
University of Missouri - Kansas City

L. Randall Wray
Senior Research Associate
Center for Full Employment and Price Stability
University of Missouri - Kansas City
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