Against all odds, and despite the usual drumbeat of criticism, President George W. Bush has had a very good year. The troop surge in Iraq is succeeding. America remains safe from terrorist attacks. And the Goldilocks economy is outperforming all expectations.
At his year-end news conference, President Bush stated with optimism that the economy is fundamentally sound, despite the housing downturn and the sub-prime credit crunch. The very next day, that optimism was reinforced with news of the best consumer spending in two years. The prophets of recessionary doom, such as former Fed Chair Alan Greenspan, Republican advisor Martin Feldstein, ex-Democratic Treasury Secretary Lawrence Summers and bond-maven Bill Gross, have been proven wrong once again.
Calendar year 2007 looks set to produce 3 percent growth in real GDP, nearly 3 percent growth in consumer spending and over 3 percent growth in after-tax inflation-adjusted incomes. Meanwhile, headline inflation (including food and energy) will have run at 2.5 percent, with only 2 percent core inflation.
Jobs are rising over 100,000 per month, and the stock market is set to turn in a respectable year despite enormous headwinds. Low tax rates, modest inflation and declining interest rates continue to boost Goldilocks, which is still the greatest story never told.
Bush's optimism is well-earned in Congress, too. He has stopped a lot of bad legislation on higher taxing and spending. He won on S-CHIP and the alternative minimum tax. He mostly prevailed on domestic spending. And he got much of what he wanted on war funding without any pullout dates.
And he's not yet finished. In the most dramatic statement of his holiday news conference, Bush said he will not stand for the continuing congressional proliferation of pork-barrel earmarks.
"Another thing that's not responsible is the number of earmarks the Congress included in the massive spending bill," said Bush. "The bill they just passed includes about 9,800 earmarks. Together with the previously passed defense spending bill, that means Congress has approved about 11,900 earmarks this year. And so I am instructing budget director Jim Nussle to review options for dealing with wasteful spending in the omnibus bill."
This is huge. The statute of limitations for Republican overspending, over-earmarking and over-corrupting, which caused huge congressional losses in last year's campaign, will not run out until the GOP shows taxpayers that it again can be trusted on the key issues of limited government and lower taxes.
In these matters, Republicans must be holier than the pope. And while President Bush has been doing the Lord's work with his newfound veto pen, he must continue to wage war on earmarks if the GOP is to cleanse the political memory of Tom DeLay, Jack Abramoff and Randy "Duke" Cunningham.
Think of it: This behemoth spending bill was porked-up with such essential items as rodent control in Alaska ($113,000), olive fruit-fly research in France ($213,000), a hunting and fishing museum in Pennsylvania ($200,000), a bike trail in Minnesota ($700,000), a post office museum in Las Vegas ($200,000) and a $2 million monument to Rep. Charlie Rangel in New York.
Senators like Jim DeMint, Tom Coburn and John McCain are working hard to clean up the earmark process. But the ball's in the president's court. Either through executive order, recission authority or apportionment of funds, Bush can elevate both the fiscal fortunes of the nation and the political fortunes of his party.
Senate Republican leader Mitch McConnell told me in a CNBC interview that elected politicians are more knowledgeable about spending people's money than faceless bureaucrats. And while McConnell has done a terrific job maintaining conservative policies in the Senate, he is wrong on this topic. The earmarks shouldn't be made. And the money shouldn't be spent. Period.
McConnell is nevertheless correct that passage of this omnibus spending bill is a defeat for the tax-and-spend-happy Democrats. Republicans also can take credit for outmaneuvering the Democrats on a patch for the AMT. The Democrats were made to waive the pay-as-you-go budget rule that might have forced tax increases on businesses and investment pools. Stopping this tax hike is a singular GOP achievement, while the AMT will now be indexed for inflation, thereby sparing over 20 million taxpayers.
Looking ahead, the economy also would benefit from a corporate tax cut for both large and small businesses, including corporate capital gains. The U.S. dollar would reap the rewards, as new investment would flow in from the world. Several recent studies also show that businesses would pass on tax-cost savings to the workforce, thereby bolstering wages and ultimately creating new jobs.
Hokey ideas for temporary tax rebates? They should be ignored. But if the president and Republicans are successful at wiping out earmarks, holding down spending and passing a bold corporate tax cut, Goldilocks will be nourished and sustained. And come November 2008, Republicans might be back in the driver's seat.