- The Washington Times - Monday, March 19, 2001

Thanks to anxious stock markets and a desultory final seven years of the Clinton presidency, George W. Bush has encountered his first bona fide crisis. The economy's a mess and he has to start the clean-up operation.

The president finds himself in an odd quandary. He has won the political battle over taxes. He's likely to get a $1.6 trillion, 10-year tax cut through Congress by July 4, and he may even persuade the honorables to throw in a few popular breaks such as a reduction in the capital-gains tax, elimination of the marriage penalty, the abolition of the estate tax and some technical changes affecting cost recovery and high-tech equipment expensing. But then again, he has declared his $1.6 trillion figure is not too large or too small, but just right.

That's part of the problem. He is running an economy now, not a porridge shop. Throughout the 2000 campaign, he and Al Gore assumed the economy would boom. They all but ignored the precipitous fall in the Nasdaq a tumble that coincided precisely with the Clinton administration's first whiff of success in the Microsoft case. They chose instead to look at happier numbers regarding productivity and consumer confidence.

Now, the happy statistics have gone away and the president must deal with a new kind of world one in which he can take very little for granted. And in this world, his tax-cut plan, at least as now conceived, looks positively puny.

Think of it this way: John F. Kennedy and Ronald Reagan pushed through pro-growth tax cuts designed to pull us out of economic slumps. Their plans cut taxes by an annual average of 1.1 percent of our gross domestic product. Kennedy's reductions lasted two years; Mr. Reagan's, three.

Mr. Bush, in contrast, proposes to reduce our tax burden by 1.2 percent of the gross domestic product not over a year, but over a decade. His average yearly reduction is only about one-ninth the size of the Kennedy and Reagan cuts.

It gets worse: Taxpayers would get only about 1/300th of this already small refund in the first year. Most of the significant reductions take place after the sixth year of the Bush plan. If you're waiting for your $1,600, be patient: It won't arrive for 72 months.

This wouldn't matter much if we were still awash in dot-com lucre. But we aren't. So now Team Bush has to turn a tiny tax cut into the fulcrum for a broad and visionary economic policy.

As most economics students know, our government has three basic tools for generating growth: Tax policy (which includes regulations), fiscal policy (the federal budget) and monetary policy. Most conservatives offer three corollary challenges: Cut taxes, acknowledge that government spends too much and demand a sound dollar.

The president gets the tax-cut part. He has made tax cutting not only respectable but mandatory.

Next up is fiscal policy. The authors of the Federalist knew Congress would spend wildly if it got the chance, and the last half-century has transformed dusty prophecy into reality. As if to prove the point, some of the president's Republican buds in Congress don't like his plan to limit federal spending growth to 4 percent per annum. They want to spend half again as much.

The chief executive has to put a stopper in the bottle before Congress drinks away the surplus. Several ideas are making the rounds: Provide a one-year "amnesty" for people who have forgotten or failed to contribute to IRAs, 401(k)s or similar savings plans. Accelerate the elimination of the estate tax. Shorten the holding period for the capital-gains tax. The point is to get the money out of lawmakers' reach.

Finally comes the trickiest part: monetary policy. The dollar has become strong again perhaps too strong. Other currencies are flagging in comparison, the gold price has tumbled and commodities prices generally are tumbling. If the dollar is out of whack, tax policy in and of itself can't fix the whole problem. Team Bush therefore needs to think very seriously about what to do about the dollar.

This initial crisis gives George W. Bush a chance to earn his spurs. While governors don't have to fret about pulling political-economic levers, presidents do and the first order of business is not to feel constrained by a too-timid campaign-trail tax pledge. It's to think boldly. Perhaps the president remembers the maxim from his days in business school: No guts, no glory.


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