Cut taxes, cut taxes, cut taxes

Ross Mackenzie
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Posted: May 14, 2003 12:00 AM

With the success of the onslaught to remove Saddam Hussein, attention there turns to follow-on, cleanup and getting a viable democracy going. Here, attention turns to getting the U.S. economy going.

President Bush I enjoyed great success in the first Iraq war, yet he failed to win re-election 18 months later for two principal reasons, neither of which had much to do with the priapic Bill Clinton. One was the presence in the race of the strange Ross Perot, who wound up taking 19 percent of the vote - most of it from instinctive Republicans. The other was Bush I's incompetent handling of the economic issue, primarily his dervish tergiversation following his adamant, "Read my lips. No new taxes!"

Bush II probably cannot prevail in November 2004, if the economy is further deteriorating or still stagnating - or not clearly recovering. And anyone seeking Bush II's defeat next year is generally one who still wishes Al Gore had done better in Florida in 2000 and dreams of, next time around, victory by say a ticket consisting of John Kerry and Bob Graham.

Government can do only a few things to encourage economic stability and confidence. Liberals broadly favor the same or higher taxes and pay lip service to slight reductions in spending; these days, as newly feathered budgetary hawks, they profess to finding horror in the merest deficit. Conservatives broadly favor lower taxes and major spending reductions.

Federal Reserve Chairman Alan Greenspan - 77, in place since 1988 and recently re-appointed by President Bush in a gesture to steadiness - has done what he can by leading a three-year plunge in overnight interest rates from 6.5 percent to 1.25 percent. Greenspan supports reduced taxes in conjunction with reduced spending.

Two years ago President Bush won a $1.3-trillion, 10-year tax cut - the principal (and overwhelming) negative of which is that those cuts will revert to pre-2001 levels unless extended permanently. This year the Republican president proposed a 10-year, $726-billion tax cut. The Republican House lowered that to $550 billion, and the Republican Senate to $350 billion. John Snow, named treasury secretary principally for his vaunted powers of persuasion, cannot name a single member of Congress he has converted to the president's plan.

And the inquiring mind has to wonder what some of those distinguished Republican congresspersons are smoking.

To borrow the great Perot's most memorable words, "think about" these economic things...

Blame what you like - government policy, 9/11, Iraq, the accounting scandals, the bursting of the dot-com bubble, corporate greed, whatever: The economy is enervated and suffering. Growth stands at only about 1.5 percent annually, compared with the 4 percent of 1996-2000 and consumer spending and corporate investment, routine contributors of 80 percent of growth, limp along. Unemployment has reached 6 percent, with statisticians fearing more than 2 million jobs have simply disappeared.

In three years the stock market has lost 40 percent of its value; the accompanying chart vividly shows the NASDAQ's recent trend lines eerily mimic those of the Dow at the height of the Depression; as many as 50 percent of Americans have lost as much as 80 percent of their savings. Nearly every state has spent itself into a financial hole. Stagnation is not limited to these shores but is worldwide, most notably in Germany and Japan.

As one analyst has noted, "The stock market's character undergoes profound long-term fundamental shifts that last many years." And truly, fundamental imbalances remain in the economy and financial markets; indeed the latter may have entered a phase similar to that of 1966-82, when market averages showed a zero return.

The Republican Congress is failing the Republican president - the economy generally and the public at large. This is not the moment for Republicans, traditionally more conservative, to sway to the rhythms of leftist demagoguery about certain tax cuts aiding "the rich." Rather, it is the hour for both targeted tax cuts and across-the-board tax cuts, combined with cuts in spending.

Investor's Business Daily advises that "this isn't some inventory correction that requires a little fiddling from the Fed and maybe a bit of goosing from Congress. It's a once-in-a-lifetime debacle that needs all the stimulus we've got, and then some, to get things back to normal." Nobel economist Milton Friedman famously summarized in six words the operative philosophy good for (nearly) all time - especially those times, such as this, when the goals are regained economic stability and confidence: (1) Cut taxes. (2) Cut taxes. (3) Cut taxes.

Otherwise, 18 months from now, those Gorean Kerry/Graham dreamers may have their fondest wishes fulfilled.