- The Washington Times - Thursday, January 23, 2003

Administration officials fear the economy is slowing further in this quarter, raising the stakes to get President Bush's tax cut stimulus plan passed as soon as possible.

Blue chip corporate economists are forecasting that the economy may grow no more than an anemic 2 percent in the first three months. And now Glenn Hubbard, chairman of the president's Council of Economic Advisers, says even this sobering estimate may be "a bit too optimistic."

While Mr. Bush focuses on a looming war with Iraq, he must also deal with a softer economy that has pushed his job approval polls down a little. The administration officials I have talked to in the past few days do not see the economy improving much anytime soon.

A worried Bush economic adviser told me he expected a weak fourth-quarter growth number, possibly close to negative territory, followed by a weak first quarter. Back-to-back quarters of weak growth spells political trouble for the president, and raises hopes among the Democrats for a political turnaround this year and next.

Sensing that the administration is heading toward rougher economic waters in the coming weeks, Mr. Hubbard ratcheted up his usually low-key rhetoric on the president's tax-cut stimulus package in a recent interview with me.

The influential chairman of the CEA, who has become a major player in setting administration economic policy, usually steers clear of the political arena in his interviews. But in a wide-ranging interview, Mr. Hubbard severely criticized the Democrats' plans and their attempts to block the president's package in Congress.

Among other things, he said that if Congress does not act soon on the president's tax cutting package, the economy faces serious risks "risks of delaying business investment" that is a prerequisite to an economic upturn.

He also accused the Democrats of wrongly attempting to "fine-tune the economy" and said their plans would not stimulate anything, let alone the economy, because their tax cuts were too small and only temporary.

"We know from past studies that temporary tax cuts have a much smaller effect on people's behavior than permanent tax cuts. The Democrats' tax cut plan is temporary, and I don't expect it to have much of an effect on the economy. I don't think it's a stimulus in any sense of the word," he told me.

Mr. Bush's plan is aimed at accelerating the 10-year tax cuts that Congress passed in 2001, with additional tax cuts on dividends and small business expenses, to encourage increase investment, consumer spending and job creation. His plan, which would be permanent, totals $700 billion, while the Democrats' proposals are less than a quarter of that amount, much of it in public works spending, and would last only a year.

The idea that such tiny, short-term plan could move an $11 trillion a year economy is laughable, he suggests.

"What concerns me when I see these plans on the Democratic side is that they have an eerily 1960s feel to them, believing that the government can zip in and out with a stimulus."

Meantime, the risks of not acting quickly on the president's proposals are indeed serious, he said.

"The risks that have been on the horizon for awhile are the risks of a delay in the investment recovery. We've talked to business executives, and they remain hesitant about investment plans. They want to be sure that the recovery is more viable, and that's what the president is trying to do in this package," Mr. Hubbard said.

The talk show pundits here are making the same gloomy predictions about Mr. Bush's 2003 plan that they made about his earlier tax cut plan in 2001: that he will have to make major compromises and concessions with the Democrats if his plan is to have any chance of passing in the narrowly divided Senate.

Actually, the Democrats are more divided than ever about their own economic policies. The most spectacular example of this is Sen. John Kerry, Massachusetts Democrat, the presidential candidate who came out for eliminating the tax on dividends before Mr. Bush did.

"We should encourage the measurement of the real value of companies by ending the double taxation of dividends," Mr. Kerry told the City Club of Cleveland in December.

But that's not what he said one month later in response to Mr. Bush's plan to do exactly what the Massachusetts senator first proposed. Instead, he attacked the president for proposing "ineffective and unaffordable new tax breaks for the wealthiest Americans."

In the absence of an effective economic plan, Democratic leaders are aggressively playing the class-warfare card again, though White House advisers say strategy no longer works in the age of the 50-million-member Investor Class.

In truth, the Treasury Department's income-distribution tables show that as a percentage of incomes, lower to middle earners would get the largest share of the Bush tax cuts. For example, a 20 percent reduction for those earning between $30,000 and $40,000 compared to an 11.4 percent cut for those making more than $100,000.

Mr. Bush's biggest economic challenge in the coming months will be to sell his plan to the American people and to Congress, though in the end fear of a weaker economy may be his strongest ally.


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

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