- The Washington Times - Monday, October 29, 2001

With the U.S. economy sinking deeper into a recession, the battle over what kind of stimulus bill is needed to rescue it comes down to two very different philosophies about what produces growth.

The House Republican bill, which narrowly passed last week, is almost wholly a tax cut bill for businesses and individuals (with some additional funding for unemployment benefits and other assistance for displaced workers). It isn't everything that supply-side critics wanted, but it would pump $100 billion into the economy through tax cuts to spur consumer spending, encourage business investment and create jobs.

The Democratic alternative in the Senate is based on the discredited, pump-priming New Deal belief that the way to get the economy growing is for government to spend more money. It didn't work back then, and it sure isn't going to work now.

Half of this much-smaller $70 billion bill crafted by Senate Finance Committee Chairman Max Baucus, Montana Democrat, would raise unemployment benefits and provide other services for jobless workers. Most of the rest goes to tax rebates for lower-income workers who pay no income taxes anyway.

A small part of it would benefit businesses, but it would have little or no impact in a $10 trillion economy. If this bill were a cure for anthrax, you might as well write out your will now.

You do not have to be an economist to know that businesses are laying off people in droves. Earnings have collapsed, and risk-taking investment capital the lifeblood of a healthy economy is sitting on the sidelines because stock market values have fallen sharply.

Last week's Federal Reserve report painted a bleak portrait of a national economy that has been battered since the Sept. 11 terrorist attacks. It included weaker retail sales, canceled manufacturing orders, falling construction starts and rising layoffs.

These cold, hard realities are going to be driven home more forcefully this week when the government releases its third-quarter economic growth numbers showing that the economy shrank between July and September. The consensus gross domestic product (GDP) number among business economists was minus .07.

And it is going to get worse in the current fourth quarter. The consensus forecast is at least double the third-quarter contraction. The traditional definition of a recession is two back-to-back quarters of declining GDP.

House Democrats sounding as anti-business as ever complain that the stimulus bill is a payoff to big business. But Ways and Means Chairman Bill Thomas, California Republican, who wrote the Republican bill, sensibly points out: "The plain fact is that businesses are America's employers. They're the source of hundreds of millions paychecks. And their success matters to anyone who earns or wants to earn one of those paychecks."

"You can't restore a dysfunctional economy without helping business stabilize and recover," Mr. Thomas says. The faster tax writeoffs for expenses and the $25 billion in refunds tied to repeal of the corporate alternative minimum tax "will free up money that businesses would otherwise have to send to the IRS, so they can channel it back into the economy through salaries, training and investments in equipment instead."

The White House thinks the House bill is too large and could be pared back to $75 billion or so, and it probably will be in the legislative tradeoffs to come.

But Mr. Thomas' pro-growth tax cut bill includes all the major proposals President Bush called for: partial acceleration in the tax rate cuts enacted last spring, help for businesses, and, in an olive branch to Democrats, rebates to lower-income workers who did not get them this summer.

But if Mr. Bush has any hope of getting a large tax-cut simulus package through the Democratic-run Senate, he's going to have to spend some of the vast political capital and popularity he has earned from his skillful handling of the war on terrorism. He will have to turn the economic stimulus issue into a national security issue.

The president began doing just that last week when he toured the Dixie Printing Co. near Baltimore. He talked up the need for corporate tax cuts, repeal of the Alternative Minimum Tax and accelerating his earlier tax cuts.

Declaring that the United States was "still under attack," Mr. Bush told the plant workers that tax cuts and economic recovery were "an important part of the home-front security. Make no mistake about it, Sept. 11 affected economic growth and our government must respond in an effective way."

His new, more forceful message to Congress was clear: A vote for a tax-cutting stimulus bill along the lines of the House-passed bill will be a vote to protect America's economic security in the midst of war. That message is going to win a lot of votes when the final roll is called.

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