A new economic-stimulus plan now under consideration by
President Bush can't come soon enough -- for the sake of both the economy
and congressional Republicans. While there are still no serious signs of a
double-dip recession, the leading economic indicators are pointing to
second-half economic growth that may well be less than the first-half's
performance. If we slow much more, not only will businesses, investors and
consumers suffer -- Republican heads are going to roll in November.
This week, the Conference Board -- which produces the closely
watched Index of Leading Economic Indicators -- reported that business
recovery is not yet at hand, orders for consumer and capital goods have been
flat over the past three months, consumer expectations have declined and, of
course, stock prices have until very recently been plunging.
Measured over six-month periods, the Conference Board's index
has gradually descended from 5.2 percent annualized growth in March to a 0.2
percent rate of decline in July. Statistical models using this index to
predict our gross domestic product over the next couple of quarters suggest
GDP growth of only 2.5 percent adjusted for inflation.
This abnormally slow pace of economic recovery, with the
likelihood of virtually no improvement in job creation, looms as a big
political problem for Republicans who want to keep the House and regain the
Senate this fall. A 2.5 percent economic-growth rate could be labeled a
growth recession. The Democrats will gladly do the labeling.
Since World War II, the United States has experienced 10
recessions, yet our economy has grown at an average rate of 3.5 percent
yearly. So, while the current recession clearly began on President Clinton's
watch, the Bush Republicans are not able to crow about providing a strong
economic fix. Even with a reasonable upturn in the stock market in the
months ahead, millions of investors are likely to remain in a dour mood as
their monthly financial statements show all too often that their 401(k)s
have become 201(k)s.
Key midterm-election races are frequently decided on
idiosyncratic personal or local battles. But as Newt Gingrich showed in
1994, it helps enormously when Republicans have a positive national message
that clearly distinguishes them from Democrats. Going on the offensive with
a pro-growth message and pro-investor tax cuts would draw more voters than a
defense of second-year Bush mistakes -- a longer-than-expected list that
includes tariffs on steel and a free-spending education bill.
The more the debate over Iraq occupies the front pages in the
weeks following Labor Day, the tougher it will be for a Republican
pro-growth message to congeal. That's why President Bush's tax-cut
announcement, made during last week's economic conference in Waco, Texas,
may have arrived just in time.
But any new tax-cut plan from the White House must be all cattle
and no hat.
First, dividend relief should be across-the-board for businesses
and individuals. A puny tax exemption for individuals alone will not do the
job. A better idea is to tax dividends at the same 20 percent personal rate
as capital gains. Next, enlarged capital-loss deductions should be
significant. For business, interest and dividend expense should receive the
same tax benefit. This will curb debt excesses and make shares more
attractive to investors.
The Bush crew should also propose that small business start-ups
remain tax-free for several years, and be taxed at a lower-than-normal rate
for a few years thereafter. This last recommendation will also help the
Bushies escape the "big-business" label.
The old political landmines of rising inflation and unemployment
don't pack nearly the same punch in today's investor-class economy. The
dismal stock market is today's biggest political threat, one that has
already eroded Bush's standing in the polls.
But those same surveys still give the man from Texas high marks
on leadership, moral standards, strengthening the military, handling foreign
affairs and cutting taxes. A recent survey by TechnoMetrico Market
Intelligence, a provider of accurate investor-related surveys, shows Bush
with a two-to-one lead over Congress on cutting taxes, and similar margins
in managing the federal budget and the economy.
More, independent voters -- the key swing bloc today -- prefer a
Republican Congress to a Democratic one by 37 to 33 percent. So, despite
setbacks on the policy front this year, the president still has reasonably
strong credibility with voters. If he builds on this political capital with
a strong tax-cutting message, a major stock-market rally and a Republican
sweep of both houses are not out of the question.
Let the Democrats wage Gore-ist class warfare. It's a proven
loser, so long as Republicans clearly show they are truly out to help
investors and revive businesses.