Speaking eloquently and very thoughtfully from the deck of the aircraft carrier USS Abraham Lincoln last week, with the magnificent backdrop of our marvelous young men and women of the Navy, President Bush announced the end of major hostilities in Iraq. Unfortunately, we’re not able to accompany that good news with any good news on the economy.
Overall, the economy grew at a tepid inflation-adjusted rate of 1.6 percent in the first quarter of 2003, virtually unchanged from last year’s fourth quarter rate of 1.4 percent. No wonder: Fixed investment in the economy fell in the first quarter, including a 7 percent drop in the computer industry. Construction spending and manufacturing activity also were off in March, and there were worrisome indications of weakness in the housing market, which had been the one bright spot in an otherwise gloomy economic picture.
To top it off, Fed Chairman Alan Greenspan says there’s no need to cut the top rates because there is sufficient stimulus in the economy already. Despite the skepticism of Greenspan – whose job it is to keep the dollar stable, not conduct tax policy – we desperately need lower tax rates on capital and labor now.
Without more capital investment, the economy cannot sustain new job creation, so it is not surprising that the economy continues to shed jobs and we find ourselves mired in a jobless recovery with unemployment at its highest level since 1994. The Labor Department reported the day after the president spoke that the unemployment rate rose to 6 percent in March with 48,000 lost jobs.
Unfortunately, the only thing currently growing at a robust rate is the size and scope of the federal government. Left unchecked, this growth in government presents a significant drag on the potential for future growth of the private sector and the overall health of the economy.
Bush realizes that it is the private sector, not the government, that is the catalyst for economic growth, and so he has proposed an economic growth plan that centers on tax reforms and incentive-based tax-rate reductions rather than promoting pork-barrel spending schemes in the name of fiscal stimulus. As annoying as the misinformation about the president’s tax proposals from the political left may be, they are not nearly as destructive as the rear-guard assault on the president’s sound economic proposals by the “fiscal austerity” wing of the Republican Party, which continues to place budget deficits uber alles, even over restoring strong economic expansion.
It is really a shame that Republican Sens. Lincoln Chafee, Olympia Snowe and George Voinovich deliberately and single-handedly torpedoed Bush’s tax-reform proposals to restore long-run vitality to the economy. Voinovich, for example, has staked a claim as a “leading deficit hawk in the Senate.” Recently on “Meet the Press” he explained, I’m all for eliminating the tax on dividends, but it’s more a part of tax reform than it is an immediate stimulus (which) is what we really need today. We need a shot in the arm to the economy, but we don’t need to shoot ourselves in the foot in terms of a deficit.”
While I have no doubt about the senator’s sincerity, he is, with all due respect, dead wrong and profoundly misguided. It is probably no coincidence that Voinovich mentioned that he is a lawyer, which only goes to prove Justice Louis Brandeis’ dictum that, “A lawyer who has not studied economics … is very apt to become a public enemy.”
To his great credit, House Ways and Means Committee Chairman Bill Thomas has stepped in to help sort out the mess created by the renegade senators. He unveiled a $550 billion economic growth proposal last week that would reduce the tax rate on dividends and most capital gains to 15 percent or 5 percent, depending on the taxpayer’s income. In addition, the bill would maintain the president’s increase for small business expensing from $25,000 to $75,000; it would establish a 50 percent “bonus depreciation” through 2005 for qualifying capital investments and accelerate the marginal tax-rate reductions, among other initiatives.
There is also encouraging scuttlebutt around Washington that the Senate Finance Committee will seek to enact the president’s entire dividend tax cut but phase it in over several years to accommodate the Senate’s deficit phobia. Although I agree with Vice President Dick Cheney and Treasury Secretary John Snow that there is no good reason not to enact the president’s entire economic growth program immediately, the Finance Committee idea and Thomas’ bill are both reasonable compromises. They maintain the essence of the president’s proposal while going most of the way toward satisfying the deficit obsessions of the Republican Senate.
The way should now be clear for Congress to declare hostilities on the tax bill at an end so that by Memorial Day we not only can commemorate those who gave their lives in the past for our freedom today but also celebrate the beginning of a new season and claim victory for the American worker and the American economy.