Hurricane Katrina is a devastating human tragedy. The White House and congressional leaders are rightly rushing to help. But they should not do so at the expense of the free enterprise agenda—which is to say, at the expense of jobs and wealth for all Americans.
The politically correct notion it is insensitive to continue with vital pro-growth policies hurts the nation generally and has an adverse impact on the people most in need of help. Promoting economic growth and prosperity is important, now more than ever, since successful rebuilding of the Gulf Coast depends on a vibrant national economy. In the last two years, the economy has grown by about $1.5 trillion, which is a tribute to Bush’s 2003 tax cuts. Keeping that pie growing will make it possible to offer more to New Orleans.
Consider the reconciliation bill pending in Congress, which includes an extension of the capital gains and dividend rate cuts. These cuts, part of the 2003 tax bill, triggered a wave of savings and investment that revived the economy. The stock market snapped out of the doldrums, staging a stunning rally that created more than $3 trillion in wealth while the Dow jumped 25 percent and the NASDAQ nearly 45 percent. Unemployment dropped 20 percent to a four year low of 4.9 percent as millions of new jobs were created.
Yet those tax cuts are set to expire in 2008. Yes, that’s still a few years away, but predictability is the mother of business confidence. The uncertainty is already beginning to put downward pressure on markets. Delaying an extension of these tax cuts in the name of the hurricane victims risks slowing the economic recovery when we – and they - can least afford to.
Fortunately, Senate Finance Committee Chairman Chuck Grassley, R-Iowa, understands the reconciliation bill is more important than ever. Sen. Grassley said in a statement this week that extending the successful 2003 investment tax cuts in the reconciliation bill is a priority given the present economic uncertainty created by the hurricane.
Sen. Grassley is correct. The rest of the GOP should line up behind him. He should go further by adding some form of immediate death tax relief to the reconciliation bill. Despite the rhetoric that this is just tax relief for the rich, the reality is that the death tax is responsible for the destruction of a quarter of a million jobs every year. Beyond that, several studies have demonstrated its repeal would actually boost federal revenues because it would stimulate economic growth.
Policymakers should reject the notion that high taxes are needed to pay for reconstruction. Even a generous disaster relief package is little consolation to a person who can't find work when the economy falters.
The House should also move forward and pass the GROW accounts bill, dedicating Social Security surpluses to personal retirement accounts. Broader issues like fundamental tax reform, litigation reform, and regulatory reform will all contribute to our economic growth and prosperity. Their importance has increased, not diminished, because of the hurricane.
We are now committed as a country to generously and compassionately rebuilding the hurricane zone and replacing what was lost. The price tag will be high, perhaps as high as $200 billion . That's real money, and we need a healthy, growing U.S. economy to help pay for it. The high price of replacing what was lost makes it more vital than ever than we continue to fight for the free enterprise agenda, a policy mix that has a proven track record of boosting economic growth, creating new jobs and greater prosperity. With rapid economic growth, a price as high as $200 billion can become easily affordable—it’s less than the difference between 3 percent and 4 percent GDP growth over the next two years.
The business of government must go on. We cannot allow the tragedy of Katrina to undermine what's best for the country's economic health. It is not the time to hit the economy with stifling regulations and high tax rates, including the expiration of the 2003 tax cuts. It is not the time to destroy family farms and businesses, and with them hundreds of thousands of jobs. It is not inconsiderate to underscore the vital need for policies promoting economic growth and prosperity in the wake of tragedy. It would be inconsiderate not to.
