Democrats Miss an Economic Shift
By Grover Norquist

Economists believe that President Bush's proposed elimination of taxes on dividends will increase stock prices somewhere between 8 and 20 percent. In short, it's good economics. But the proposal is also a political tsunami that will change the politics of the next decade and further solidify the GOP's grip on power.

Before he announced his budget on January 7, the chattering classes predicted that Bush might trim Social Security taxes to help low income workers, accelerate tax rate reductions only for lower income Americans, or trim dividend taxes. But Bush avoided nods to class warfare, and he didn't call for reducing the double taxation of dividends, he said we should abolish it. This was a smarter political move: Abolition is a stand on principle, cutting a tax is tinkering.

Consider this: Repeated efforts to cut the death (or estate) tax have only been successful temporarily. Each time, rates crept up again. But when Congressman Chris Cox argued that income the government had already taxed should not be taxed again, this became a matter of principle rather than special pleading. Legislation to abolish the death tax completely passed Congress in 1999 and in 2000, only to fall to Bill Clinton's veto each time. In 2001, however, President Bush signed legislation phasing out the tax.

Another milestone in the battle came when opponents stopped calling this levy the "estate" tax--which sounds like something that only concerns fox hunters--and gave it the accurate and fatal renaming of "death" tax. A tax that kicks in at death sounds wrong.

Likewise, Bush has already won half the debate when he calls for "ending the double taxation of dividends." Americans will not long tolerate the "double taxation" of anything. It sounds--and is--wrong.

What's most important is that Bush has proposed the first tax cut aimed directly at the new investor class. When Reagan was elected President, 20 percent of Americans owned stock directly. Today, more than half of all adults do--not to mention 70 percent of those who voted on November 5, 2002.

Democrats fell right into Bush's trap. In a phrase that will resonate for decades, Senate minority leader Thomas Daschle said the dividend tax cut was for the "wrong people." If you are planning to win elections that require 51 percent of the vote, it is best not to describe 70 percent of voters as "the wrong people."

Democrats who talk like Daschle remind voters that their ideas are so old they think only fatcats named Kennedy and Rockefeller own stock. The Democrats missed the greatest economic/demographic shift in modern America: the growing number of middle class families who own stock in the economy.

President Bush's proposal to abolish the double taxation of dividends carries many political bonuses. Any $300 billion tax cut will unite all members of the conservative coalition, whatever its exact dimensions. The proposal also pecks away at the Democratic coalition: Nearly every thousand-dollar donor to the DNC receives dividends from stocks.

And every day that taxpayers see Republicans trying to revive the value of the stock market while Democrats stand in the way, earns the GOP loyalty from the growing investor class. The longer this fight goes on, the worse it will be for Democrats.