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Two Huge Victories
As President Bush boarded Air Force One for his Memorial Day visit to the ranch, he had
earned every right to put his old boots right up on the coffee table. On Thursday morning at about 10:15, the United
Nations Security Council witnessed the passing of a psychological watershed. The Franco-German-Russian powers,
says Stratfor Intelligence Brief, raised their hands and acknowledged before global television cameras that the
Anglo-American alliance is too powerful and they are now willing to accommodate themselves to a subordinate role
in the world. The Iraqi sanctions were lifted.
At the same time, in Washington, Congress agreed on a tax reduction package that the Democrats had opposed in its
entirety. The Democrat Presidential hopefuls and their minions were left with little to do except can jars of "I
told you so's" and store them in their 2004 pantry. Bereft of ideas, the left bases its hopes on repackaging
Hillarycare, the economy going into a double-dip recession and the terrorists pulling off a spectacular attack
somewhere against American interests. Their current path looks a lot like a roadmap to oblivion.
The Security Council vote at the United Nations was 14-0 with Syria not in attendance. The resolution, with some
90 changes to accommodate members, lifts the 13-year-old economic sanctions, gives U.N. support to U.S. and British
control of the country until such time as a democratic government is installed and clears legal hurdles to rebuilding
Iraq using its own oil revenues. Some eight million barrels are already at storage points and can be sold immediately.
The U.N. action has the effect of giving sanction to the war.
While the Security Council has a chance to review the resolution within a year, there is no set time limit on how
long Iraq will be under Anglo-American administration. Nuclear, but not biological/chemical, inspectors from the
U.N. will be allowed in but there is no certain time schedule. An independently audited Development Fund for Iraq
will be created by the Central Bank of Iraq and it will disperse funds as directed by the governing authority.
The resolution not only grants broad powers to the U.S. and Britain to run the country and sell its oil, it also
protects Iraq against lawsuits and attachments from creditors. Past debt is deferred for a later day. During the
phase out of the current food-for-oil program, Secretary General Annan will administer through sole discretionary
power the existing $10 billion in approved and funded contracts, many of them with Russian companies. The U.N.,
however, is only to honor contracts for nutritional and health supplies so only a fraction of Russian company obligations
are covered.
Kofi Annan will name an envoy with some independent powers to involve the U.N. in the establishing of a representative
government. The U.N. will not play a lead role. Speculation at the moment centers on the current U.N. High Commissioner
for Human Rights Sergio Vieira de Mello. He has support from Washington.
Today's action goes beyond France. Stratfor suggests that it is about the precipitous decline in European power
on the international stage. The three great continental powers of Old Europe combined have proven themselves unable
to influence the United States, unable to control its behavior and unable to issue a threat with serious consequences.
Having demonstrated that they lack the power to prevent the invasion, they now have no choice but to live with
the consequences of their actions. That represents a remarkable shift in the global balance of the last 200 years.
The media fascination with the size of the domestic tax cut - $330 billion plus $20 billion for states - doesn't
really indicate its effect. The 2001 cut of $1.3 trillion was so back loaded that its effects were minimal and
mostly deferred for several years. The current bill is front loaded and can have an impact that is just in time
to nourish the economy of 2004. By July, for example, checks for $400 will begin to arrive at 25 million households
with earned child-tax credits.
Following the House plan, tax rates on dividends will be reduced to be equal to the tax rate on capital gains.
Both will be at 15 percent (or five percent for low-income taxpayers, many of whom are retired). Current rates
are up to 38.6 for dividends and 20 percent for capital gains.
Tax reductions on wages called for in the first tax bill but not scheduled to phase in until 2006 would be made
permanent and pulled forward to January 1st of this year. The included items are reduced rates for married couples,
increases in child-tax credits for two children, an expansion of who is covered by the lower brackets and updated
rules on paying the alternative minimum tax. Small businesses would be able to expense up to $100,000 of new equipment
and all businesses would be allowed quicker depreciation write-offs.
The package has a variety of sunset provisions which would restore different taxes after a few years, from 2004
to 2009. The betting, of course, is that no Congress would have the nerve to raise taxes. However, phase-outs make
every election a tax referendum. The deficit so squeezes the Democrats that every proposal they make has to be
accompanied with a plan to increase taxes to pay for it. On the other hand, not eliminating the double taxation
of dividends leaves the door open for a future raise in rates rather than a final elimination of the burden.
Privately, Democrats view the package as a complete victory for the administration. Combined with the prospects
for a drop in oil prices and a further interest rate reduction from the Fed, the cuts may appear to be the work
of a caring and can do administration. As a practical matter, there is very little politicians will enact that
stimulates growth and creates jobs in the short run. We have an almost $11 trillion economy. What they can do is
enact sound long term policy that allows business to thrive and ordinary citizens to save and invest. And one more
thing. Deficits, after all, don't come from too little taxes being collected but from too many public dollars being
expended.
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