- The Washington Times - Monday, October 8, 2001

With Democratic leaders balking over his stimulus package amid signs of growing impatience from business leaders anxious for a deal, President Bush acted last week to shift negotiations out of neutral and into overdrive.

The biggest problem was that no one in the administration was taking charge of the negotiations, say business leaders. A broad range of tax cuts were on the table, along with a pile of noxious Democratic demands for more spending that would do nothing to recharge the economy. But there was no heavyweight at the White House who could cut through the political obstacles and move the process forward, a chief Bush ally told me.

With the economy shrinking in the third quarter, and possibly the fourth quarter as well, Mr. Bush was coming under increasing criticism last week for White House inaction on the economic front.

"As signs of a recession multiply, the White House has yet to define what it wants in a proposed legislative package aimed at stimulating the U.S. economy," bemoaned a front page Wall Street Journal story. "Confusion sometimes exists on Capitol Hill over just who speaks for the administration on economic policy."

Business leaders who have been advising the administration on the shape of the stimulus package complained that Mr. Bush was bending over backward to please every faction in Congress in order to keep bipartisanship alive. And the president was not exercising his full powers to lead as he did in the tax cut and budget battle earlier this year.

Mr. Bush's declaration of intentions last week was certainly a step in the right direction. Any package that emerges from the negotiations must boost consumer confidence and spending, which drives two-thirds of the economy, he said.

He suggested moving up the tax cuts now in the 10-year-long pipeline, or sending out another tax rebate to get more money into the hands of taxpayers as soon as possible. And he called for providing tax credits for business to encourage investment and expansion.

Democratic leaders threw cold water on the size of Mr. Bush's $75 billion stimulus plan, calling for no more than $50 billion. And they wanted more money to assist displaced workers, which Mr. Bush has largely agreed to, though the amount is still under discussion.

Near the end of last week, White House negotiations were moving at a snail's pace, and some Democrats said it could take several weeks more to get an agreement.

That action was not going over well on Capitol Hill, where House Majority Leader Dick Armey, Texas Republican, was already fine-tuning a plan of his own for Republicans, who are growing nervous as a recession looms, with all of the political fallout that portends. The Labor Department reported about 60,000 new jobless claims as unemployment continued to rise.

Mr. Armey, secretly meeting with key Republican lawmakers who want action, issued a four-point statement of "Principles for an Economic Growth Package" that looked like a separate GOP stimulus plan of his own, no matter what the White House produced.

"Tax relief, not new spending increases," he urged. "Focus on pro-growth policies that encourage job creation" and investment. Yes, get some short-term stimulus but "focus on economic growth for the long-term."

But whatever economic stimulus package ultimately emerges, it is important to keep in mind that the economy is already getting a lot of monetary and fiscal stimulus.

"There is a huge amount of stimulus in the economy now," says Bill Dunkelberg, chief economist for the National Federation of Independent Business. Consider the list: Fed interest rate cuts of 350 basis points since January and more to come; A huge pro-growth $1.7 trillion tax cut over 10 years; Falling energy prices; Virtually zero inflation rate; $55 billion in emergency defense, rebuilding and recovery assistance and airline bailouts; and a big 8 percent increase in overall discretionary spending in this fiscal year, twice what the administration wanted.

"At the end of 2001, the U.S. economy will still have employed one of the highest percentages of the population [over the age of 16] in our history," Mr. Dunkelberg said.

The U.S. economy had hit bottom before the Sept. 11 attacks and was poised for a comeback until the terrorist attacks slammed on the brakes, the economy stopped in its tracks and jobs were jettisoned by the thousands.

What the U.S. economy faces now, more than anything else, is a near-term crisis in confidence, and that's what the stimulus plan should principally address. It should be simple and direct and concentrate on the three main parts of the economic equation that need fixing:

Step up the income tax cuts to quickly lower the withholding in people's paychecks. Cut the capital gains tax rate to dramatically boost stock market values and spur new risk-taking, job-creating investments. Round out the plan with tax breaks to encourage business expansion by accelerating depreciation of investment in new equipment and technology.

This is an economy with a lot of fundamentals in place for a recovery. All it needs is a bold, quick, well-aimed shove in the right direction.

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