- The Washington Times - Sunday, July 22, 2001

Economists and political analysts say the nearly $40 billion in tax cut rebates that 90 million taxpayers begin receiving this week will help revive the economy earlier than expected this year and give President Bush's popularity a major boost.
Mr. Bush's job approval scores have been running as high as 57 percent, according to public opinion polls, but they have been tempered by public dissatisfaction with a weak economy crawling along at about a 1 percent growth rate. They're also concerned about mounting job layoffs and the slump in the stock market that has sharply reduced the financial assets of millions of Americans.
All that could change dramatically in the next few months as the first batch of U.S. Treasury checks — ranging from $300 to $600 — begin arriving in mail boxes this week. Business economists believe that the rebates, plus the first phase in the lower paycheck withholding rates from the rest of the $1.35 trillion tax cut package, will give taxpayers a major injection of new disposable income that will help pull the economy out of its slump.
"We think the rebates are going to boost the economy in the second half of this year, adding around three-quarters of a percentage point to economic growth," said Martin Regalia, the U.S. Chamber of Commerce's chief economist.
"We think next year that the whole tax cut package means a full percentage point over the course of the whole year. We think the growth rate this time next year should be between 3.75 percent and 4 percent," Mr. Ragalia said.
"Our growth forecast in the current third quarter is around 2.5 percent and probably closer to 3.1 percent or 3.2 percent by the end of the year," he said, "and that will be due to the Federal Reserve Board's easing [of the prime rate] and to the tax cut."
If his forecast proves accurate, it would represent a sharp turnaround in an economy that grew at an anemic 1.2 percent in the first three months of this year. The consensus forecast for the second quarter, due to be reported this week, is around 1 percent.
Whatever the effect on the economy in the short-run, political analysts see the rebates as a political home run for the president and his party.
"My initial thought before we approached the date of the rebates' going out was that it would not really have that much effect because it's not much money," said pollster John Zogby. "However, this is right about the time that some folks are planning for the kids' going back to school, or whose finances are on the tight side, or people who deciding whether or not they can take a few days at the shore."
"My gut tells me that this is going to be pretty popular, and it should give Bush a big boost," Mr. Zogby said. "I don't know how long a life that boost will be, but I have to admit to you that my mind has changed."
"Despite the dismissive grunts from the liberals, $300 to $600 is a lot of money for working class families. It will be a big political winner for Bush and the Republicans," said Stephen Moore, president of the Club for Growth that campaigns for tax cuts.
"Politically, this is a grand slam for Bush. Taxpayers are not used to getting checks from the government. They are used to writing checks to the government. This is a new experience and, politically, it is a master stroke," Mr. Moore said.
However, the tax-cut crusader admits that he is pessimistic about the first year of the 10-year tax cut package having much of a stimulative impact. Economic growth will increase no more than 2 percent a year for the foreseeable future, he said. "I just wish the rate cuts would start phasing in a lot earlier."
Lawrence Lindsey, the president's chief economic adviser, disagrees. In an address last week at the Federal Reserve Bank in Philadelphia, he said that the nation's top forecasters see the tax cuts having a significant influence on consumer spending and on the nation's gross domestic product this year, even before the fourth quarter.
"The blue chip consensus view, on average, was that the tax cuts may add about 0.5 percent to the growth of personal consumption expenditures in the third quarter of this year," Mr. Lindsey said.
"New York Federal Reserve Bank President William McDonough believes that the tax cut could increase real GDP by 0.4 percent this calendar year [or roughly twice that rate in the second half of the year] and by 0.7 percent in 2002," he said.
Morgan Stanley Dean Witter, the Wall Street brokerage firm, is telling its clients that "the tax bill delivers fiscal stimulus sooner than we've been expecting, and it packs a punch: We estimate that it will boost second-half growth by about 1-1/4 points."
And Credit Suisse First Boston's Neal Soss says, "We expect it to add roughly 1 percentage point to consumer spending growth from what it otherwise would have been and 0.75 percent to GDP growth over the next 18 months."

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