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Bush can lead on the economy
By W. James Antle III
Perhaps mindful of the fact that defeating Saddam Hussein failed to insure his father's reelection, President Bush used his first weekly radio address since Congress adopted his Iraq war resolution to talk about the economy. The Associated Press headline read "Bush Shifts Focus to Jobs."
The question is what can the president do beyond talking about economic recovery? His economic summit in Waco, Texas earlier this year yielded few answers and those reforms that were discussed were not acted upon, at least in part due to a lack of enthusiasm from Republican lawmakers. He has gone along with some modest stimulus packages that disproportionately contain government spending increases, something only the most stubborn Keynesian truly believes is stimulative. The administration is reluctant to propose more tax cuts because they are concerned about the budget deficit and leading Democrats are already blaming the tax cut Bush signed into law in 2001 for the evaporation of the surplus.
Bush shouldn't allow these allegations to scare him away from pursuing a more pro-growth tax policy. Nearly 90 per cent of the tax cut passed last year has not yet taken effect; a similar phase-in delay combined with bracket creep and previously legislated payroll-tax increases minimized the positive economic impact of the Reagan tax cuts 20 years ago and allowed the 1982 recession to take place. Yet once the American taxpayers enjoyed a net tax cut, unprecedented peacetime economic growth occurred.
But like the Kennedy-Johnson tax cuts of the 1960s and the Harding-Coolidge tax cuts of the 1920s, the Reagan tax cuts were larger than the Bush tax cuts today. If Bush wants to ignite an economic boom of those proportions, he should come up with a similarly bold plan to lift the tax barriers to productive economic activity.
The surplus isn't disappearing because the bottom marginal income tax rate is being cut to 10 per cent while higher rates are cut by as little as 1 per cent, even though static analysis of the revenue effects of such rate cuts assume they have no larger macroeconomic influence. It is actually slower than projected economic growth that is causing tax revenues to decline even as the federal government continues to increase spending. In August, the Congressional Budget Office found that the personal income tax was yielding 23 per cent less revenue than had been previously projected; drops in the amount of revenue collected from this and other taxes accounted for 80 per cent of the decrease in the CBO's 2002 budget surplus projection. Lower individual income tax revenues also account for 42 per cent of the decrease in the CBO's budget surplus projection from 2002 to 2011.
What is the best way to increase these revenues? By raising taxes, even when the economy's performance is sub-par, or by encouraging economic growth that will create jobs, businesses and higher incomes? This is the question that Bush must ask the American people and he must promote tax policies that will actually free their entrepreneurial and productive spirits. To do so will require deeper marginal rate cuts than the ones already slowly being phased in and tax cuts friendly to investment, risk-taking and innovation. It may even be time to consider more drastic tax reforms, such as moving in the direction of a flat tax or otherwise overhauling the existing tax code. Terrorism insurance for building projects isn't going to be enough.
Such advice is directly contrary to the conventional wisdom, which states that there is no way Congress would pass additional tax cuts. Cautious Republican operatives would warn that there is no consensus in favor of more radical tax reform. They would of course be right about this, but they would be missing a larger truth - leadership sometimes is necessary to create consensus.
Consider what we have recently witnessed in the debate over war with Iraq. Just a few months ago, it was so unclear that the president would be able win congressional approval for an Iraq war that his White House counsel's office devised a legal rationale for going to war without it. Outside of British Prime Minister Tony Blair, there was little international support for such hostilities. Yet President Bush continued to forcefully make his case and take on a leadership role in the debate.
After his September 12 speech to the United Nations, international opposition to Bush's policy of regime change in Iraq softened somewhat. More dramatically, a resolution authorizing the use of force against Iraq passed 77 to 23 in the Senate and 296 to 133 in the House, with Senate Majority Leader Tom Daschle (D-SD) and House Minority Leader Richard Gephardt (D-MO) among its supporters. A higher per centage of Democrats in both chambers supported Bush than supported his father in the debate over the Persian Gulf War.
A Pew Research Center poll found that Americans favored Bush's handling of the war on terror by 71 per cent to 22 per cent; 46 per cent said they trusted the Republicans to make the right decisions regarding Iraq compared to only 30 per cent who favored the Democrats. Yet on economic questions, respondents preferred Democrats to Republicans by 41 per cent to 37 per cent and believed Bush could be doing more to help the economy by a 2-to-one margin.
If Bush were to exercise the same leadership on economics and domestic policy that he has demonstrated in foreign affairs and national defense, it is possible that he could turn those numbers around and accomplish things that are now unthinkable. He must work to confront critics and create a new consensus that views lower taxes and reduced government spending as a solution rather than a problem.
Focusing on economic revival at home does not necessarily detract from the war against terrorism abroad. Instead of being distracted by false choices, Bush should seek to promote policies that will make America both prosperous and secure.
James Antle III is a senior writer for Enter Stage Right.
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