- The Washington Times - Monday, October 1, 2001

There is now no doubt whatsoever that Congress will soon pass a bipartisan, tax-cutting stimulus bill to get America's shattered economy growing again as the nation prepares for a war against terrorism.

A week ago, Fed Chairman Alan Greenspan was telling lawmakers he wanted to see more economic data before advising Congress to embark on a major stimulus package. Days later, both he and former Treasury Secretary Bob Rubin, a Democrat, were telling the tax-writing Senate Finance Committee that a major stimulus bill was needed now, perhaps as large as $100 billion.

Before the devastating terrorist attacks on New York and Washington, the White House was reticent about seeking another tax-cut bill, even though the economy had all but stopped growing in the second quarter, and the current third quarter didn't look any better. This meant the economy was already skirting a recession before the suicidal attacks on America's centers of power shoved it over the edge.

Unless something was done to further stimulate the economy, worried White House advisers told President Bush at a strategy meeting, they did not see any significant economic recovery occurring until next year, possibly not until midyear or later. And that would be devastating for Republicans in the midterm elections.

That's when Mr. Bush gave the green light to his economic advisers and Republican and Democratic leaders in Congress to start negotiations immediately on a stimulus package.

As of late last week, the White House had not yet signed off on a specific plan. But a broad range of options were on the table, including accelerating the existing tax cuts passed earlier this year, cutting corporate tax rates and other business tax breaks to stimulate expansion and new investment.

Mr. Bush's economic and political advisers remain opposed to capital-gains rate cuts though it is strongly supported by Republican leaders, their rank-and-file and the investment community. The president's inner circle fears that capgains will spark a bitter fight with Democratic leaders that would threaten congressional unity in the midst of a national security crisis.

There is also significant support among perhaps a couple of dozen Democrats in the House and about a dozen Senate Democrats for capgains cuts to stimulate risk-taking investment and to boost stock values. That's what happened when capgains were last cut in the mid-1990s, leading to an explosion of new investment and faster economic growth.

Before the terrorist attacks that have devastated the airlines and related industries, the case for additional stimulus was based on strengthening the economy. Now it is based on national security in a time of war.

"If America is to successfully wage war on terrorism, we will need the resources that only can be generated by an economy firing on all cylinders," said Jack Kemp of Empower America and a coalition of more than 20 other groups in a letter to Mr. Bush last week.

Helping the administration as it negotiates a new stimulus package is the fact that the Democrats have junked their arguments about protecting the surplus and fear of a deficit. "We can't be constrained by artificial limits," says Senate Budget Committee Chairman Kent Conrad, North Dakota Democrat, who just a couple of weeks ago was attacking Mr. Bush for dipping into the Social Security surplus.

The price that the Democrats want the administration to pay for their support will be significantly higher social welfare spending, including assistance to laid-off airline workers, tax rebates for lower-income people who do not pay taxes and a lot of public works expenditures.

Some additional spending to strengthen the nation's transportation infrastructure, such as new security measures to rebuild confidence in the airline industry, is certainly needed. So are the funds appropriated for defense, intelligence and recovery aid for New York and the families of the victims, among other needs.

But the bulk of the economic stimulus package must be additional tax cuts to feed a weakened, undernourished economy starved for investment capital.

You do not get more economic growth through massive public works spending. The Japanese have been trying that approach for years and have remained mired in a deep, decadelong recession.

"Every dollar the government spends whether prudently or foolishly is a dollar that is diverted from the private sector," Heritage Foundation economist Dan Mitchell reminds us.

He's right. You get growth and jobs by growing the economy, not by growing the government.

"Our tax code punishes saving and investing, which fuels the entrepreneurial spirit of America," said Rep. Paul Ryan of Wisconsin, an up-and-coming Republican leader who is pushing a tax-cut stimulus plan in the House. "Removing these obstacles will unleash the capital and investment needed to rebuild America's economy and create more jobs."

Meantime, we should not be timid about the size of the stimulus package or let fears of a short-term deficit frighten us from acting boldly. We will likely have budget deficits over the next couple of years or so. But sizable surpluses will return as soon as the American economy gets back on its feet, as we saw in the 1990s.

A strong economy is one of the most effective tools of war. And the sooner we begin reinvesting in it, the sooner it will begin growing again.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide