Waco

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.