Returning to the supply side

Posted: Jan 10, 2001 12:00 AM
The success of George Bush’s first term may hinge on the expeditious implementation of his tax cut package. As such, it is important that he devote sufficient political capital to its speedy passage. Because Bush’s re-election in 2004 may depend on the ultimate form and timing of his tax cut bill, he can expect vigorous opposition from congressional Democrats, who have a vested interest in delaying and diluting his proposal. Since Democrats appear to remain in the Clintonian mode of political warfare, Bush will have his work cut out for him. No matter how formidable his executive skills, he will need help from certain congressional Republicans. Note that I didn’t say "from the congressional Republican leadership." Speaker Denny Hastert has already made clear his preference for the politically "safer" incremental phasing in of the tax package. And Sen. Lott has given us a pretty good idea about his current mindset regarding "bipartisanship." In short, Bush needs a Jack Kemp -- someone in Congress who is willing to assume the laboring oar in driving his tax plan, unadulterated, through Congress. This was a no-brainer for Kemp, who was a supply-side enthusiast perhaps even before Reagan was. It is time for Republicans to quit deluding themselves into thinking that they will benefit themselves (or the nation) by unilateral appeasement. When the other side is gunning for you, such policies never work. They don’t work in the Middle East, and they are not going to work with congressional Democrats. Besides, the Bush tax cut proposal is not substantial enough to have the desired beneficial effects on the economy unless it is passed without much dilution. Cutting the proposal in half, say to $700 billion, would barely make a ripple in the economy. Democrats characterize Bush’s proposed cut as monumental and risky, but I believe they would say that no matter what size it was and no matter what the projections for future surpluses. In fact, recently revised budget projections forecast surpluses to be some $1 trillion greater than previously expected. If so, shouldn’t Bush’s $1.3 trillion package not only be whisked through Congress -- but substantially increased? Bush and his congressional allies must recapture the enthusiasm for the tax cutting philosophy and then sell it. Obviously, it won’t be easy. Because we’ve enjoyed a robust economy for all but a few short quarters of the past eighteen years, many have come dangerously close to assuming that good times are guaranteed in perpetuity. The recent downturn may have jolted us back into reality. While we’re thinking clearly we ought to remind ourselves that monetary and fiscal policy do have an impact on our prosperity (or lack of it). Yes, we need to keep hammering the point that people’s hard earned money belongs to them and not the government and that surpluses are presumptively the people’s money. But we mustn’t lose sight of the economic ramifications of tax policy. We can’t continually overtax ourselves without eventually dragging down the economy. Presently, our income taxes as a percentage of GDP are the highest in our nation’s history. Since legislative successes are often a function of convincing the public, Bush needs to continue to make his case to the American people for his tax cut, just like Reagan did. Bush should emphasize the following points: He ran, and was elected, promising a $1.3 trillion, not a $300 or even $700 billion, tax cut. It was to be implemented all at once, not gradually. Surpluses belong to the people, and government will spend them unless they are returned to the people. Indeed, after doing a masterful job in reducing spending as a percentage of GDP, Congress has allowed spending to creep back up in gluttonous anticipation of the surpluses. As wasn’t yet known during the presidential campaign, the economy has slowed and needs a "shot in the arm." To the extent that people are hyperventilating about "squandering" the surplus, we must remember that marginal income tax cuts are not revenue neutral; they will generate productivity and revenue, as in the '80s. Plus, there is nothing sacred about surpluses -- they are but a sign of overtaxation. Republicans need to get fired up and get behind George Bush -- and soak up some of his optimism and good cheer. They must show that they can handle prosperity -- and perpetuate it.