- The Washington Times - Thursday, August 22, 2002

It turns out that those know-it-all pundits who said the White House's economic forum in Waco was just a political stunt were dead wrong. President Bush says his administration is looking at some new initiatives to help recoup the losses of small investors and encourage them back into the stock market.

In what may be the most important political development of this listless August recess, we now see Mr. Bush skillfully used the forum to set the stage for a round of new economic proposals for his party to run on in the fall elections. White House advisers have concluded the economy's lethargy and Wall Street's volatility call for a stepped up agenda to spur growth and new investing. The present agenda trade-negotiating authority, the 10-year tax cuts, energy development and terrorism insurance appear to be losing their punch and do not seem to be enough to lift the economy out of the doldrums before Nov. 5.

Thus, last week Mr. Bush told reporters at his ranch in Crawford,

Tex., that the economic forum had convinced him that more needed to be done to help investors who suffered deep losses in their 401(k)s and IRAs. He is considering proposals to increase the amount of losses investors can write off their taxes as well as cutting taxes on capital gains from the sale of stocks and investor dividends.

He plans to announce these and other proposals after Labor Day, though it is doubtful Congress will have time over the next month or so to fully act on them. But it is likely a bill will pass the Republican House in early September.

Even so, the package of investor tax cuts, deductions and increases in higher contribution limits to 401(k)s

and IRAs will send an important signal in the election that help is on the way if Mr. Bush and the Republicans hold on to the House and retake the Senate.

This is a strategic midcourse correction for the president and his party in an economic and political environment that remains unpredictable at best.

Republican pollsters are picking up a disturbing level of voter disgruntlement about investor losses that they fear could hurt Republicans in close races.

Two-thirds of likely voters own stocks and most of them have suffered deep losses, many who are just a few years away from retirement. Among the ideas that Mr. Bush's top advisers are looking at:

• Cutting capital-gains tax rates is a win-win idea. Investors cash in on gains in stocks and other assets to take advantage of lower taxation, and that leads to a spurt in tax revenue for the Feds that will reduce the deficit. It also unlocks investment capital that will flow into other higher-yielding stocks in faster-growth sectors that in turn will feed business expansion and create jobs.

• Cutting taxes on dividends will encourage companies to offer dividends and even to increase them. That will entice investors to buy their stocks and will boost public confidence in the markets and provide a more stable source of earnings for investors and retirees.

• Raising the present $3,000 limit on deductible stock losses would give beleaguered investors needed relief from the financial pain they have endured over the past few years. House Republicans have been pushing to double the deduction limit, but some financial analysts want it raised to $20,000. The revenue price tag for the latter: $45 billion over 10 years.

• Accelerating a higher contribution limit for retirement savings plans that were put into Mr. Bush's 2001 tax cut plan would be a boon to investors and to the overall economy. Mr. Bush raised the yearly IRA limit to $3,000 and the annual 401(k) contribution ceiling to $11,000. Higher limits will mean more money going into mutual funds, improving business liquidity and boosting economic growth.

The big question is: How will this play in the fall elections? House and Senate Democratic leaders have been bashing the Bush tax cuts, saying they help the rich get richer. But it will be hard for them to play that divisive, class warfare card against a tax cut plan largely aimed at smaller investors who vote in disproportionate numbers compared to noninvestors who take up much of the Democratic Party's base.

The stock market's volatility and the snail's-pace economic recovery have cast a cloud of uncertainty over this election year. The Conference Board's index of economic indicators, which forecast the economy's performance three to six months from now, fell 0.4 percent last month.

A strong, pro-investor, pro-growth, pro-jobs plan will give the GOP's election agenda the higher political octane it needs to help its congressional candidates in key, close races. It will further sharpen and enlarge the economic policy differences that divide the two parties. And it will put the president and his party back on offense in the critical battle to decide who is going to manage the economy and Congress for the next two years the tax-cutters or the tax-raisers?

Donald Lambro, chief political correspondent for The Washington Times, is a nationally syndicated columnist.

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