The president devoted considerable time Wednesday night to his domestic conservative reform agenda. He restated the economic power of supply-side incentives to work, save, and invest, all of which combine to grow the economy. Bush proposes to make the 2003 tax cuts permanent, which means permanently lower tax rates on personal income, investor dividends, and capital gains, as well as the elimination of the estate tax.
Politicians pay careful attention to real-world results, not academic treatises. So it?s not surprising that Bush remains committed to his successful supply-side experiment. The domestic private sector -- roughly 80 percent of the total economy -- expanded at a 5.4 percent rate for all of 2004 following the passage of the 2003 tax cuts. A cautious Federal Reserve has kept core inflation at a minimal 1.5 percent and unemployment is a low 5.4 percent. The supply-side plan is working.
In his address, the president made a notable mention of the tax-reform panel headed by former Sen. Connie Mack. Space is always scarce in these documents. Featuring tax reform so prominently means this is a key presidential priority. Indeed, making existing tax relief permanent and then highlighting the need for a new code ?that is pro-growth, easy to understand, and fair to all? makes for an even stronger second-term commitment to incentive economics.
Bush also repeated his plea for congressional action on new energy production, ?including safe, clean nuclear energy.? He reemphasized the need for legal reforms to stop ?irresponsible class-action and frivolous asbestos claims,? as well as the necessity of ?medical liability reform that will reduce health care costs.? These are also pro-growth policies.
Another welcome surprise came when Bush said his new ?budget substantially reduces or eliminates more than 150 government programs that are not getting results, or duplicate current efforts, or do not fulfill essential priorities.? You can already here the interest-group squeals from K Street lobbyists. Cheers, however, should ring from Wall Street. As financial markets know full well, lower federal spending releases resources to the private economy that will be used productively to start businesses and create jobs.