- The Washington Times - Thursday, December 28, 2000

Two huge economic developments make it certain George W. Bush will sign sizable tax-rate cuts sometime in the New Year. They are a larger-than-expected, 10-year budget surplus and a weakening economy that is desperately in need of some emergency treatment.

The Congressional Budget Office is working up new budget surplus estimates that, while still in the preliminary stages, point to a much bigger budget surplus forecast in February, despite the current economic slump perhaps $1.4 trillion more than the $4.6 trillion forecast that the CBO made earlier this year.

The reason for the higher revenue estimate is that the CBO now thinks that the economy will grow faster over the coming decade than they previously forecast: closer to an average of 3 percent a year than the 2.5 percent to 2.7 percent growth on which earlier surplus estimates were based.

This means lawmakers will be looking at fatter surpluses in the coming years reaching perhaps $2.5 trillion to $3.5 trillion in the general fund alone which does not include Social Security surpluses that would go into paying off the government's publicly held debt.

These huge surplus expectations, plus the fear of a weakening economy, at least in the short term, mean that many Democrats are going to be joining Republicans to cut taxes to get the engine of growth up to a full head of steam again.

The key to all of this will be the economic growth targets of the Bush administration. The economy had been cruising along at a 4 percent to 5 percent increase in its gross domestic product, the measure of all the goods and services we produce, when Fed Chairman Alan Greenspan warned that the economy would overheat and spark inflation. So the Fed tightened money, which slammed the brakes on GDP growth, slowing it from 5 percent to 2 percent or even lower in the third quarter.

But there was little real inflation to speak of, as U.S. technology allowed businesses to produce things more efficiently at a lower unit cost. Mr. Greenspan seems to have finally come around to this reality, albeit a little late. We can have much higher growth without inflation and without the economy overheating.

Paul O'Neill, Mr. Bush's nominee to be treasury secretary, acknowledged this last week, though his call for "higher growth" was eclipsed by pundits who focused on his support in the early 1990s for tax increases a position he no longer holds.

"It is true that I'm one who believes that we can operate at higher [growth] levels than most economists could have told you 20 years ago were possible that is to say, with higher real rates of growth without inflation," Mr. O'Neill told reporters. In fact, he thinks we can have 4 percent annual growth with price stability.

The only questions now are not if, but how soon Mr. Bush will get his across-the-board tax cuts passed to get this economy and the financial markets moving upward again, and how large the tax-cut package will be.

Bill Clinton sent out his advisers last week to suggest that Mr. Bush is deliberately talking the economy down to make the case for tax cuts. In fact, he is merely stating what the administration's own economic reports are showing: sharply declining growth rates; falling retail sales; declining durable-goods orders; a sharp drop in factory production; lower consumer confidence; and rising layoffs, from autoworkers to some technology sectors that have been hit hard by the sharp sell-off in tech stocks. The Nasdaq composite index has lost half its value in the past 10 months.

Wall Street, increasingly pessimistic over the past year, is gloomier than ever. Even the usually optimistic Larry Kudlow, chief economist at ING Barings, warns that "the economy is weakening at an alarming rate." Worse, Mr. Kudlow thinks "a negative real GDP rate for the fourth quarter cannot be ruled out, nor can a negative number in the first quarter."

But if the economy continues to hemorrhage in the coming months, GOP leaders do not see how Mr. Bush can get early action on a tax bill to turn the economy around in 2001, when the Clinton economy becomes the Bush economy.

It took Ronald Reagan, with all of his bully-pulpit skills, eight long months to get his tax cuts through Congress in 1981, even with the economy plummeting into a deep recession and 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," a top House Republican leadership official told me.

After having won by such a narrow electoral margin and with Congress as bitterly and deeply divided as it is, can Mr. Bush move his tax-cut agenda through any faster? That seems unlikely. This means a series of interest-rate cuts by the Fed are going to be even more critical over the next six to eight months to keep this economy out of the jaws of a recession that could make the new president's first year in office a rocky experience indeed.

Donald Lambro, chief political correspondent of The Washington Times, is a nationally syndicated columnist.

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