Last week, I was somewhat critical of President Bush's economic
conference in Waco, Texas. It was not that I thought there was anything
wrong with this particular conference. It is just that I view all these
conferences, such as the one Bill Clinton held in 1992, as a waste of time.
I still think that such conferences are a very poor way of
getting genuinely new ideas. However, the Waco conference may have served a
useful purpose in focusing the president's attention on economic issues for
a few days. Indeed, one participant in the Waco conference thought that this
was really its principal purpose.
This theory makes sense to me. I know from my own experience
working in the White House and at the Treasury Department how crowded a
president's or Cabinet secretary's schedule can get. Even in times much more
peaceful than now, foreign policy tends to dominate scheduling, because it
is always time-sensitive. It is too easy for even the treasury secretary to
put off briefings on the economy to meet with some visiting finance minister
or deal with a Third World debt problem.
Unfortunately, economic policy is always viewed as something
easily put off until tomorrow. It is very seldom that some action in this
area absolutely has to be done today. Also, most policy actions by an
administration that really matter involve legislation, which is always a
very, very slow process.
It is always hard to get your boss's attention in government.
Often, scheduling a meeting or a conference of some kind is the only way to
force him or her to focus on the issue at hand. When I worked in Congress, I
would sometimes schedule a hearing for the sole purpose of forcing the
chairman to sit still for a briefing about the hearing. The hearing itself
was secondary. Its function was to create an action-forcing event that would
temporarily displace all the other demands on his time.
I now suspect that Bush's economic advisors may have devised the
Waco conference for a similar purpose. They have undoubtedly been frustrated
by his preoccupation with the war against terrorism. It's a tough job to get
even half an hour of the president's time in the course of a week, even in
less stressful times, to brief him on current economic conditions. And such
meetings are undoubtedly among the first to be canceled when something more
pressing emerges unexpectedly -- a regular occurrence, I am sure.
Therefore, the Waco conference may have served a useful purpose
after all. Bush clearly emerged from it far more energized about economic
policy than he has been for a long time. Soon thereafter, he told reporters
that he was looking closely at some fairly major tax initiatives. These
include the following:
-- Increase the amount of losses investors can deduct on their
tax returns. At present, the IRS takes a percentage of all gains, but only
shares in losses up to $3,000 per year -- a figure fixed since 1978. Given
the magnitude of recent stock-market losses, increasing the loss limit would
greatly benefit many middle class taxpayers.
-- Reduce the double taxation of corporate profits, perhaps by
allowing dividends to be received tax-free. In a new report, economist Ed
Yardeni of Prudential Securities explains that this would encourage firms to
pay out more dividends, which are a better indicator of profitability than
easily manipulated earnings statements. In short, it would solve a lot of
the corporate governance problems we read about almost daily.
-- Liberalize 401(k) contribution limits in order to allow
people to make up for losses in their retirement accounts. Since
contributions to such accounts are tax deductible and earnings compound
tax-free, losses in 401(k) accounts are never deductible. It seems only fair
to allow people an opportunity to undo the damage caused by the stock market
by being able to save more for their retirement.
-- Cut the capital gains tax rate. This would help draw new
investors into the stock market and perhaps spark a rally. It would be even
more effective if combined with indexing of capital assets to inflation, as
the personal exemption already is.
It is good to hear Bush talking about these kinds of innovative
ideas, even if it took bringing a couple of hundred people to Waco in the
middle of August to make it happen. One could wish that they had been part
of his original tax package. Nevertheless, they are still good ideas that
Congress should be encouraged to act upon quickly, so that investors can
benefit from them this tax year. Bush should send a formal proposal to
Congress the day it reconvenes.