- The Washington Times - Monday, September 24, 2001

It isn't easy to turn America's economy around when it has veered dangerously off-course and drifted deeply into stormy territory. The painfully slow process of recovery has been compared to the difficulty of turning around an immense ocean liner, but even that hardly does justice to the enormity of a $10 trillion a year economy, the largest in the world, that employs 120 million Americans.

The $1.35 trillion in tax cuts (it has since been estimated to total $1.8 trillion over the next 10 years) that Congress enacted earlier this year, when the economy was still growing, though barely, was supposed to do the trick. But most of the income tax rate cuts were on the back end of the decadelong phase-in and have had little immediate impact.

Even the $38 billion in retroactive tax cuts in the form of the rebates while welcome is only a tiny thimble of relief in an oceanic economy.

It seemed this summer that the economy would turn upward by the fourth quarter or the beginning of next year. There were some signs of that happening. The bearish stock market was sending tentative signals that all it needed was some palpable signs of better corporate earnings to begin buying again. And consumers were still buying, though cautiously. The housing industry, boosted by low interest rates, was still strong.

Then came the horrific wave of terrorist attacks on America, and for a while the U.S. economy stopped breathing. The markets plunged after a four-day shutdown, though much less than doomsayers predicted. Consumer confidence fell further. The already precarious airline industry is flat on its back, laying off nearly 86,000 people and in dire need of assistance. Manufacturing, despite shrunken inventories, is still shrinking. Boeing, the aircraft giant, is laying off 30,000 workers.

No one doubts now that the U.S. economy was not growing in the second quarter, despite the government's revised 0.2 percent gross domestic product growth figure, or that the GDP will be negative in this third quarter. That will put the country officially into a recession.

Clearly, the economy is in need of additional stimulation and growth incentives, and Congress is grappling with that now. The question is, how do we turn this ocean liner around in the short-run, and what to do for the long run?

To their credit, House and Senate Republican leaders were already calling for more tax cuts before the terrorist attacks as new government data showed that the economy was not fully responding to the Bush tax-cut plan as had been hoped.

Certainly, capital-gains tax cuts are needed for long-term growth. The arguments by opponents that they would encourage a selloff of stocks and thus hurt the economy is ridiculous. Every time the capgains tax rate has been cut, the stock market has risen because the after-tax value of investments have risen.

The economy is weak, in large part, because it lacks risk-taking investment capital that is needed for business expansion. Lower the tax rate on capital and you not only increase its value, you will get more of it to boot.

Yes, it will encourage stockholders to sell underperforming stocks, but that money will by and large be put back into stronger investments where there is the hope of a higher yield over time. Moreover, increased stock sales will produce more capgains tax revenue for the U.S. Treasury and thus strengthen its fiscal situation at a time of economic and military peril.

At the same time, how about accelerating the income tax cuts? The next income tax-rate reduction will occur in January, but we could use that stimulus this year.

There are calls for lowering the Social Security payroll tax that would immediately put more money into the hands of every worker. The payroll levy a tax on employers and employees is still producing a sizable surplus for the feds, $150 billion this year, so that is certainly doable.

Other business tax breaks, such as investment-tax credits for machinery and other expansion plans, is the most popular idea in Congress. But a lot of businesses are sorely strapped for cash right now and would not be in a position to take advantage of that.

Meanwhile, as Congress and the administration go about the task of rebuilding our weakened economy, let's not lose sight of our strengths.

We entered this vulnerable period with a big budget surplus, putting us in a stronger position to deal with the costs of war and economic recovery. Unemployment is rising, but at 4.9 percent in August, still relatively low. The Bush tax cuts such as they are are on track and putting money into the economy. The Fed has cut interest rates and will cut them further. It is also providing cash reserves to shore up the economy. And the Congress has approved $40 billion in emergency funds that will find its way into the economic bloodstream, and additional defense spending to come will act as a further fiscal stimulus.

As we saw in the past couple of weeks, this still is a strong, vibrant, can-do country that never gives up. We'll get through this. Keep believing.

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