- The Washington Times - Sunday, May 27, 2001

The $1.3 trillion tax bill that is on its way to President Bushs desk, alas, has one monumental defect.

The tax plan provides too little tax reduction too late to help the economy any time soon. This is a problem that I and others have been blaring with a megaphone to the White House and the congressional leadership since the tax debate started back in January.

Apparently, no one is listening. The tax bill has gotten less economically stimulative, smaller in size, and more back-end loaded as it has meandered its way through Congress. What Congress is about to pass is a tax bill that would be terrific for America if we were living in 2011.

But, of course, this is 2001. And in 2001 the economy and the stock market are ailing. But the data below show that the tax cut does not provide much juice for the economy until about 2005. A supply-side tax stimulus is needed right now not in 2005 and beyond.

This bill is not just the wrong medication for the economy. It is also politically boneheaded. In 2002, the Republicans must try to hold precarious majorities in the House and Senate in crucial midterm elections.

In 2004, Mr. Bush must run for re-election. In other words, Republicans will face voters twice before having provided almost any short-term tax policy changes to enhance capital investment, saving, risk-taking or job creation.

Now it is certainly plausible that the animal spirits of the information age economy, with some useful prodding from the accommodationist Federal Reserve policy of late, may muscle the high tech and manufacturing sectors back into shape even without any tax cut stimulus. The economy may soon roar back to life, in which case the Republicans will be home free.

But what if it doesn´t? What if the economy remains stalled and the stock market continues to slip into bearish territory? Investor class voters are not going to be happy campers. Under a bearish scenario the political implications are almost 100 percent predictable: congressional Republicans will get wiped out in 2002. Mr. Bush may be evicted not long thereafter. And they will get tossed out because of their failure to rescue the economy when they had the opportunity to do so.

Why, for heaven´s sake, take that chance?

As currently drafted, the tax bill provides just one microscopic supply-side stimulus to the economy before November 2002. It nicks the top tax rate down from 39.6 percent to 38.6 percent. And then there is no further reduction in the highest tax rate until 2005. That´s what all the hullabaloo is about? This has about as much chance of hot-wiring the economy as a butter knife has of cutting down a mighty oak tree.

Now it´s certainly clear that the anti-growth Democrats in Congress constitute an imposing obstacle to the Republicans´ passing even a mildly stimulative tax bill. The Democrats have become so ensconced in class-warfare ideology that they are now seemingly genetically incapable of endorsing any change in tax policy that would help the economy. Any change in tax policy that would create prosperity, might also inadvertently help rich people. Tom Daschle and Dick Gephardt will have none of that.

Georgia´s Sen. Zell Miller, the one Democrat who has consistently supported tax cuts this year, recently chastised his colleagues, noting that they are "is no longer the party of pro-growth tax-cutting as it was under JFK."

Tragically, he is right.

Why not add a three-year capital gains tax cut to 15 percent, effective immediately? Sens. Wayne Allard, Colorado Republican, and Judd Gregg, New Hampshire Republican, have sponsored an amendment to do just this. A capital-gains cut is the one tax change that could almost immediately rally the stock market, stimulate capital investment, and reverse the drought in venture capital funding that is dragging down the high-tech sector of the economy. To do this will cost virtually nothing in terms of lost revenue. It is virtually a free tax cut, that will do a world of good. It is an insurance policy against recession, and that´s a policy that every Republican up for re-election in 2002 should gladly take out.

Whether it is fair or not, this is the George W. Bush economy, stupid. Passing a tax bill with delayed tax cuts in 2005 and beyond puts both the economy and the GOP in needless peril.

Fix it in the House-Senate Conference by getting more tax relief and rate reduction up front and by demanding a capital-gains cut. This will require President Bush to fight for further cuts and even risk defeat. He will need to stand off the class-warfare rhetoric that will be thrown in his face. But he will prevail, because Americans want a tax cut now not five years from now.

This fight will give Mr. Bush and the Republicans a victory that they can truly savor.

Stephen Moore is president of the Club for Growth.

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