- The Washington Times - Friday, June 8, 2001

Tax-cut advocates cheered the sweeping tax-relief bill that became law yesterday, calling it a huge political victory for President Bush and the Republicans and predicting that the rate cuts would produce stronger economic growth in the fourth quarter and thereafter.
Conservative, supply-side economists and tax-cut activists had previously bemoaned the six-year implementation period for the lower marginal income-tax rates in the $1.35 trillion tax-cut law that Mr. Bush signed yesterday. But many now believe that the combination of gradually lower withholding rates that will begin showing up in worker paychecks in July (about $60 billion worth) and the $40 billion in retroactive tax rebates that taxpayers will get in the mail later this summer will give the sluggish economy a powerful booster shot to restore its previous vigor.
"Not only will consumer confidence rise with marginal rate cuts and rebate checks this summer, but thousands of small companies … will benefit as well," said Jerry Jasinowski, president of the National Association of Manufacturers.
"The result will be economywide: We predict that the more than $100 billion stimulus package (taxpayers will receive this year) will help bring about growth rates over 3 percent by the fourth quarter," Mr. Jasinowski said.
With the economy growing at little more than 1 percent in the first quarter and with most economists seeing little change in growth rates until the fourth quarter or early next year, that is a bullish prediction from the chief representative of the manufacturing sector, which has been in a recession for nearly a year.
Lawrence Lindsey, Mr. Bushs economic adviser, also expects an economic turnaround by years end or early in 2002 as a result of this years tax cuts and the five consecutive interest-rate cuts by the Federal Reserve Board.
Mr. Lindsey, who was the chief architect of Mr. Bushs original $1.6 trillion tax-cut proposal, said Wednesday in an interview with The Washington Times that the economys decline "is largely over."
"I would expect the turnaround late this year or early next year," he said. "I think the combined effect of the tax cuts and the Feds easing (of interest rates) will combine to produce that."
Larry Kudlow, the Wall Street economist who is a leading tax-cut advocate, was a critic of the tax-cut bill, but this week he changed his tune, calling the final package "a signal achievement" that will produce "important new pro-growth incentives" for the economy.
"No question, an ideal package would have cut marginal rates deeper and faster than the bipartisan legislation" the president signed, Mr. Kudlow wrote in his weekly analysis. But he said that the reduced marginal rates, especially for those in the lower-income brackets, "will pay off over time in rising earning and wealth-creation potential."
Mr. Kudlow now predicts that the tax cuts could push the average annual economic growth rate trend from 3.5 percent to nearly 4 percent "over the next five years."
Some supply-siders were more cautious, however, hailing the long-term effect of the tax cuts, but worrying that they would have little immediate effect over the next year and a half because the bulk of the tax-rate reductions will not be achieved until 2006.
"It is a plus for the economy over the long term, but I just worry that so much of the tax cuts are backloaded," said Stephen Moore, president of the Club for Growth, which promotes lower taxes.
"This helps the economy in 2004 and thereafter, but does not produce a supply-side stimulus in the next 18 months, and thats a problem because the Republicans have to face the voters in 18 months," Mr. Moore said.
Still, Mr. Moore and others were ecstatic over the political implications of Mr. Bushs tax-cut victory in the face of fierce resistance from Democratic Party leaders.
"Its a huge victory. After President (George) Bushs 'read my lips betrayal in 1990, a lot of people had lost trust in the Republicans as a tax-cutting party, and did not believe they would keep their promises. This helps put all that behind the party once and for all," Mr. Moore said.
"The other good thing for the Republicans is that the Democrats postured themselves as the anti-tax-cut party. The class-warfare argument that was the first line of attack for the Democrats fell flat on its face," he said.
While tax-cutters still complained about the slow phase-in of the lower tax rates, some noted that the reductions would be largely near their goals by 2004 when Mr. Bush will probably be seeking re-election.

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