- The Washington Times - Tuesday, December 26, 2000

President-elect George W. Bush must cut taxes early next year to reverse the economy's sharp downturn and avoid a recession or else risk losing control of Congress in 2002, political analysts said.
With continuing signs of a rapidly declining economy, rising layoffs and a bearish stock market, Republican analysts fear that at best Mr. Bush will have on his hands an economy that will be difficult, if not impossible, to turn around quickly.
Bush advisers worry that, since Federal Reserve Board Chairman Alan Greenspan decided not to cut interest rates, the economic situation they will face next month could be even weaker than it is now.
The Fed will not meet again until Jan. 31, and, by that time, "we could be facing much more serious problems," a Bush economic adviser said.
Anticipating that his sweeping $1.3 trillion tax cut plan will be a hard sell in a narrowly divided Congress, Mr. Bush and his advisers already have begun making the case that his income tax rate cuts are needed now to keep the economy from slipping further.
But Republican strategists think there will be much more at stake next year than just the health of the economy. Republican control of Congress also will be at risk.
"If the economy falls into a recession, which party is going to be blamed for that? It's going to be the Republicans, and they will pay a heavy price in the 2002 midterm congressional elections," said Stephen Moore, president of the Club for Growth, which raises funds for conservative candidates.
"The Republicans would lose the House and the Senate. They would have a tough time holding on to the House and the Senate in good times, but if the economy is weak, it's going to be a blood bath," Mr. Moore said.
Mr. Moore said that he and other Republican supply-side tax-cutters are angry with House Speaker J. Dennis Hastert, Illinois Republican, "because he doesn't seem to understand how important the tax cuts are to his party politically. Tax cuts are essential for the Republicans to retain Congress."
At the same time, he and other Republican tax-cutters are urging party leaders to get behind Mr. Bush's call for income-tax rate cuts early next year.
Rep. Philip M. Crane, Illinois Republican, who is in line to be the next chairman of the tax-writing House Ways and Means Committee, told The Washington Times last week that if he becomes chairman, he will hold hearings even before Mr. Bush is sworn into office Jan. 20.
"Now that the economy appears to be slipping, tax cuts are even more important. I expect the committee will hold hearings as early as the second week of January to see what other tax cuts would be most effective in returning the economy to a strong growth path," Mr. Crane said.
"The economic case for tax cuts is that this is the absolute perfect time to cut taxes. We are on the eve of a potential recession. Right now we are at about 2 percent growth, and that's already having an effect. If we go to 0 percent growth, we're going to really be feeling the pain," Mr. Moore said.
"The right time to cut taxes is when the economy is really slowing down, which means that Bush has to pass this immediately. I've been suggesting that Bush announce next week that the tax cuts should be made retroactive to Jan. 1."
After nearly a decade of increasingly stronger economic growth, the incoming Bush administration does not want to start his presidency with an economy that is in a free fall. The president-elect's people are looking at what they can do early next year to counter the decline.
"If the economy is slowing down, you sure as hell do not want it to be your fault," said Grover Norquist, president of Americans for Tax Reform and a leading proponent of tax-rate reduction.
The Republicans would be "wise to inoculate themselves against an economic downturn by cutting taxes at early as possible," Mr. Norquist said.
Other Republican leaders and economic analysts are making similar arguments for Mr. Hastert to act quickly next month on Mr. Bush's economic proposals.
Rep. James H. Saxton, vice chairman of the Joint Economic Committee, released a new JEC study showing that there has been "a sharp slowdown in the pace of the economy in recent months."
"The slowdown in the U.S. economy has been quite sudden and significant and is reason for concern," the New Jersey Republican said. "The rate of economic growth appears to have been cut roughly in half, and the downward momentum must be contained, especially given the lack of inflationary pressures."
Mr. Saxton thinks that tax cuts along the lines proposed by Mr. Bush and interest rate cuts by the Fed are both needed now to keep the economy from sliding further toward a recession.
Wall Street economist Larry Kudlow, an adviser to Republican leaders, also is sounding the alarm in Republican circles, warning that "the economy is weakening at an alarming pace," and that the economy is going to get weaker in the months ahead.
"Sales are down, production is down, housing is down, profits are weakening, consumer confidence is falling. Are the wheels completely coming off the economy? Maybe so," Mr. Kudlow said last week in an economic analysis for National Review Online.
"Right now, a negative real [economic growth rate] for the fourth quarter cannot be ruled out, nor can a negative number in the first quarter," Mr. Kudlow said.
The technical definition of a recession is zero or negative growth over two consecutive quarters. The economy has been growing at between 4 percent and 5 percent for that past few years, but has slowed to 2.2 percent in the third quarter, the Commerce Department said last week.
But if the economy continues to slow in the coming months, House and Senate leadership officials do not see how Mr. Bush can get early action on a tax bill in time to affect the economy in 2001.
It took President Reagan eight months to get his tax cuts through Congress in 1981, even with the economy plunging into a recession and with Republicans in full control of the Senate.
"Even though Reagan came in with a tremendous mandate, and with all of the effort by Reagan, it took him a long time to get it signed and the economy worsened over that time," said a House Republican economic adviser.
Democratic leaders have been opposed to Mr. Bush's tax-cut plan, but there appears to be growing public support for a tax cut.
A CBS News poll of 1,048 adults conducted between Dec. 14-16 showed that 61 percent favored "a $460 billion tax cut for the country over the next five years," while 28 percent were opposed, and 11 percent had no opinion.
"If the economy continues to weaken next year, the political pressure will be on the Democrats to abandon their opposition to tax cuts and support George W. Bush's plan," said an economic adviser to Mr. Bush.

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