Dear Mr. President:
I want to commend you for reaching out for advice recently to a number of outside sources on what to do about the stock market, the economy and the challenges facing our global trading system. It's reassuring to know you are vigorously pursuing trade promotion authority and might be considering ending the double taxation of dividends. However, with all due respect, I was disappointed to hear that the Treasury Department is pre-emptively ruling out as unrealistic any consideration of major tax reform, tax simplification and deregulation as a way of restoring strong economic growth.
Twenty-five years ago this month, Sen. Bill Roth and I first introduced our legislation to slash income tax rates 30 percent across the board, modeled after President John F. Kennedy's tax rate cuts of 1964. I was derided as a witch doctor, a snake oil salesman, a voodoo economist and a dangerous riverboat gambler -- and that was just coming from Republicans. You should have heard what liberal Democrats said.
We were told by so-called "mainstream" economists that if tax rates were cut by 30 percent, revenues would collapse, inflation would soar, interest rates would go through the roof, the economy would crash, and poor people and senior citizens would starve. On Aug. 15, 1981, President Ronald Reagan signed the across-the-board tax rate reductions into law. By 1988 the top rate was 28 percent and the economy boomed without inflation, while revenues went up, not down, as we had predicted.
Congress emasculated your tax rate reductions by phasing them in over almost 10 years and then repealing them in the 11th. In this environment, the small tax rate reductions will do little to help the economy grow but will provide your opponents a target and an excuse to blame you for the weak economy, slumping stock market, and eviscerated 401(k) and pension plans owned by American workers.
I urge you to ignore the so-called "political realists" in and out of your
administration who tell you that anything bold can't be done. Tell the naysayers on your economic team to gird themselves for battle or pack their bags for home.
The issue is not economic security; it's the need for strong economic growth and low rates of unemployment. Here's some advice to get the economy moving again: Advance bold and serious economic growth proposals that make tax reform, tax simplification, tax rate reductions and deregulation the centerpiece; roll over capital gains taxes on equities to match the rolling over of capital gains on residential housing; rather than talking about trade promotion authority, repeal the steel tariffs; articulate that America doesn't seek a weak or strong dollar but a stable one; and speak to the world on how the OPEC cartel's pricing of oil is a disaster to your market-oriented goals for a strong world trading system.
In the meantime, it has become apparent that Congress is a spending and regulation runaway train. It is passing vaguely and ill-conceived regulations on businesses that will certainly cause more long-term damage to the economy. Some in the Senate are even going to the point of hoping to empower the nongovernmental Federal Accounting Standards Board to require businesses to expense the estimated future value of stock options, which will destroy one of the most single powerful forces at work today democratizing our entrepreneurial capitalistic system.
There is no small irony here. Executives at Enron and other American corporations are under criminal investigation for reporting estimated future earnings as real earnings in the current period, which misleadingly, perhaps fraudulently, overstates earnings. Some in the Senate, meanwhile, in stealthlike fashion, are proposing to force companies to report the estimated future value of stock options as a real expense, which vastly understates earnings. If we really want to jump-start growth, particularly in technology, we should expense investment in technology, not stock options.
Bottom line, Mr. President, Washington is obsessed with a false trade-off between economic growth and economic security, and the policies being put in place in the name of that trade-off are guaranteed to give us less security as well as less growth. Your economic team is doing you a disservice if they are unwilling to advise you on the bold and serious proposals necessary to move this economy forward.