Economy Shouldn't Be Left to Roll Down The RoadCommentary by Pete du Pont
January 28, 2002
Calvin Coolidge once noted; "When you see ten troubles rolling down the road, if you don't do anything, nine of them will roll into a ditch before they get to you."
This line of thinking may explain why, when it comes to dealing with the nation's economy and the economic stimulus package, many in Washington are content to sit by and do nothing.
President Bush, it appears, doesn't subscribe to the wait and see attitude. He understands that while the economy does work on natural cycles, many people across the country simply can't afford to wait. Plus, after months of everyone in Washington discussing the importance of passing a stimulus package, not passing one might have the practical effect of delaying any recovery that might already be developing.
And then there are the political ramifications of doing nothing. To appear to be "sitting idly by as Rome burns," would be damaging to anyone's hopes of re-election. Bush, having witnessed his father's fate, understands this all too well.
And suddenly, Bush doesn't appear to be the only one to get the picture. After pulling the plug on the bi-partisan stimulus package before the holidays, Senate Majority Leader Tom Daschle announced this week that he's willing to talk. Unfortunately, Daschle's offer to vote on the spending proposals both sides had already agreed to is more politics than policy. He is worried that people are pointing fingers of blame at him and his colleagues in the Senate instead of at the While House. As for legislation that might actually have an affect on the economy, it doesn't even get debated.
If Senate Democratic leaders won't budge on the bipartisan bill and the deal Daschle is offering won't help, what should Bush do?
Simple. Using the unparalleled microphone that is the State of the Union address, Bush should marshal public opinion behind a series of pro-growth tax cuts, including ones he had previously bargained away in the hopes of reaching a quick agreement.
First, speed up, not delay or forget - as Sens. Daschle, Clinton and Kennedy have suggested - the tax rate cuts passed earlier this year. Most of the tax cuts Bush pushed through Congress in June won't go into effect for years. So not only have they nothing to do with the recession that officially began in March, but they will come too late to reverse it. Making them effective on January 1st of this year would have an immediate impact on the incentives of people to work, save and invest - all things needed to boost the economy.
Second, Bush should call for a significant cut, in the tax on capital gains. Why capital gains? Our economic problems have been investment, not consumption driven. Consumer spending, at least prior to September 11, was steady, and unemployment was still low. In the aftershock, investors turned completely risk adverse, preferring to keep their new money in safe havens instead of putting it at risk in the economy. Americans didn't even spending their rebate checks.
A substantial capital gains cut will instantly increase the funds available in the marketplace. In addition, the value of stocks would rise, which would lead to a further increase in investment. A rate cut will also lead to an increase of tax collections for the first couple of years, which could prove important for the war effort.
Third, Bush should call on Congress to do away with the corporate alternative minimum tax. While certainly a tougher sell, it is sound pro-growth policy. The AMT is like a completely separate federal tax system parallel to the corporate income tax. Companies calculate their taxes both ways and pay whichever yields a higher tax. Under the regular income tax, they get the full benefit of various tax incentives, such as accelerated depreciation, which are taken away under the AMT. However, the AMT tax rate is only 20 percent, versus 35 percent under the regular corporate tax. This means that companies affected by the AMT have a disincentive to make capital investments, which are crucial to economic growth and job creation, once the AMT kicks in.
The economy needs a jumpstart, and not just for psychological reasons. Bush should use his bully pulpit, and his high approval ratings, to marshal support for good pro-growth policies. This in not the time to watch the economy simply roll down the road.