- The Washington Times - Monday, April 15, 2002

The U.S. economy's strong expansion over the past three months should temporarily silence President Bush's noisy Democratic critics who maintain that his tax cut policies are hurting long-term growth.
Glenn Hubbard, the chairman of the president's Council of Economic Advisers, tells me that when the Commerce Department announces the first-quarter growth rate next week, it is going to be "especially good."
How good? The early consensus among blue chip business forecasters is that the gross domestic product, the measure of all the goods and services we produce, shot up by between 4 percent to 5 percent in January, February and March. And Mr. Hubbard says the GDP rate will come somewhere within that range, which he calls "pretty reasonable."
That kind of go-go growth is surely going to depress Mr. Bush's critics, who have been predicting that the tax cuts will be a fiscal and economic disaster.
House Democratic Leader Richard Gephardt joined his colleagues at a three-day conference here last week, sponsored by the Campaign for America's Future, where Democrats fiercely attacked what they called Mr. Bush's "Enron tax cuts."
At an earlier Democratic Leadership Council pow-wow, former Clinton economic adviser Gene Sperling warned that the tax cuts would result in long-term deficits and higher interest rates that would pose "a significant economic problem."
And who can forget Senate Majority Leader Tom Daschle's speech in January crafted by Mr. Sperling which warned that the tax cuts would "worsen the economy."
But when Commerce officials release their first-quarter GDP figure on April 26, it will likely show the economy growing at somewhere around 4.5 percent, swelled by new factory orders as businesses replenish depleted inventories, a robust housing market fueled by lower interest rates and increased disposable income as a result of lower tax rates.
Mr. Hubbard knows the economy cannot continue to grow at that torrid pace and will slow down to a more sustainable pace for the rest of the year, perhaps around 3 percent. "Growth will likely be higher in the first quarter than the rest of the year," he told me. "But on balance, I see a pretty good recovery this year.
"It will not be as rapid a growth rate as we saw in the very late 1990s, but it will be at or above potential growth this year, he said." The White House says potential long-term growth will be 3.1 percent.
As for the fear of another slow down later this year, Mr. Hubbard says that "barring very unforeseen events, such as another terrorist attack, I just don't see the chance of a double dip."
But "there are still risks to the economy that shouldn't be discounted," like the surge in oil prices, he said. "The danger is there. If there is a run-up in energy prices, that would act as a tax on households' purchasing power just as if we've raised taxes. And that could retard growth for the rest of the year."
Boosting Mr. Hubbard's optimism for continued growth for the rest of this year is his belief that "business investment strength should be returning around the middle of the year." This will be helped by the business investment tax cuts in the stimulus bill Mr. Bush signed earlier this year, which could add 0.3 percent or more to the GDP growth rate.
The recovery comes in the nick of time for Mr. Bush and the Republicans as they head into the critical midterm election campaigns where control of the House and Senate is up for grabs. Just a handful of elections could put the Democrats back in charge of Congress, killing the administration's agenda for the next two years.
The economy and jobs remains the top issue that voters say will determine how they will vote in November, according to recent polls. Unemployment is always the last statistic to move in a recovery, and Mr. Hubbard doesn't see "big increases in employment until well into spring or early summer. We're not out of the woods on employment," he says.
But the Republicans know that whatever unforeseeable risks remain in the economy, what the Democrats are proposing is much worse.
In his speech to the DLC, Mr. Sperling proposed freezing the top two income tax rates at current levels, which he said would only affect rich "families making over $190,000."
But raising taxes on these top taxpayers, who pay nearly 40 percent of the income taxes, would especially hurt small-business people who pay their taxes through the personal income tax code. And that would be a disincentive to new small-business creation, which creates most of the jobs and start-up ventures in our country.
Clearly, the economy is on a roll and doing far better under Mr. Bush's tax cuts than it could be doing if Mr. Sperling and his friends had their way. Something tells me that when the GDP numbers come out next week, there won't be any cheering at the Democratic National Committee.


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