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Democrats ‘Skeptical’ That Tax Cuts Will Boost Economy

Two weeks after the Republican-led Congress passed a $350 billion tax cut, Congressional Democrats today questioned whether the economy would improve as a result.

Sen. Byron Dorgan (N.D.), chairman of the Senate Democratic Policy Committee, said at a Democratic policy hearing this morning that he hopes the cuts will stimulate the economy out of recession.

“If it doesn’t succeed, the question is what is the alternative strategy?” he asked.

Rep. John Spratt (D-S.C.), ranking member on the Budget Committee, said he is “a skeptic that the tax bill cut will do what it was advertised to do.”

Robert Reich, secretary of Labor during President Bill Clinton’s first term, testified that the tax cuts would fail as short-term stimulus.

“It only benefits people at the top,” he said, noting that they already are stimulating the economy with consumer purchases.

Average working people will receive an extra $80 to $100 a year as a result of the tax cut, he said.

In the short term, Reich said the federal government should share revenue with heavily indebted states.

“Government has got to be the spender of last resort in order to stimulate the economy,” he said, adding that state debt is “acting as a fiscal drag.”

The long-term solution to a slowing economy, he said, is to fund education, infrastructure and health care programs that improve America’s labor force, without running up huge deficits.

“In the long term, supply side economics don’t work,” he said.

The Congressional Budget Office projects that the federal budget deficit this fiscal year will exceed $300 billion, a figure that does not take into account the tax cuts. Democrats on the House Budget Committee recently released figures forecasting a $500 billion deficit next year.

Rep. Bobby Scott (D-Va.), pointing to a prepared chart, said, “We got all this red ink by giving tax cuts which essentially help the wealthy.”

Also testifying at the hearing was former Republican lawmaker and 1996 vice presidential nominee Jack Kemp (N.Y.), now head of Empower America. He said the tax cuts would generate growth by “lowering the cost of capital and lowering the costs of labor.”

Kemp, who said he did not represent the Bush administration, added that he would favor elimination of the capital gains tax.

“An economy that is hampered by restrictive tax rates and cannot produce enough revenue to balance our budget, just as it will never produce enough jobs.”

Kemp, who spent 13 years as a professional football player, introduced himself to the committee by saying, “I’m not an economist. As you mentioned, I played professional football, but I played quarterback.”

After Kemp’s testimony, Dorgan said he had a football question. “If a quarterback calls for a play three times in a row and it doesn’t work, he changes signals,” he said, to which Kemp replied, “Touché.”

Democratic lawmakers said they were concerned about what some analysts have called “jobless recovery.”

Spratt said the committee met because “we are faced with an economy that has lost 3 million private-sector jobs.”

Reich said the Bush administration’s projection of 1.4 million jobs created by 2004 is likely to be accurate, but not attributable to tax cuts.

“If the Fed did nothing, if everyone sat on their hands, it would be a miracle if 1.4 million jobs weren’t created,” due to normal cyclical growth, he said.

Reich also predicted the Federal Reserve, led by Chairman Alan Greenspan, would further cut the short-term interest rate during its next meeting on June 24 and 25. “I have no inside information,” he added.

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