- The Washington Times - Sunday, June 1, 2003

George W. Bush has signed the third tax cut bill of his presidency, the stock market is moving upward and the clock is ticking toward the 2004 elections.

While Mr. Bush’s tidy $350 billion economic-stimulus bill isn’t as large as it could have been (he wanted $726 billion), there’s a lot more punch in this tax cut package than has been reported.

Republican leaders reduced much of the package’s price tag simply by slicing the effective life span of the tax cuts, knowing that the cuts will be extended — or more likely made permanent — before the decade’s end. The cumulative, three-year tax cut stimulus will eventually total at least $1.8 trillion in a $10 trillion-a-year economy, not including a fourth tax cut expected to be proposed next year.

The question now is whether Mr. Bush’s tax cuts will turn the economy around before Democratic campaign strategists start blaming the administration’s policies for rising unemployment rates and a mushrooming national debt.

Here’s how I think things are shaping up and where the economy is likely to be headed over the next seven months, as we move into next year’s presidential election.

What works: Past U.S. economies have reacted positively to tax cuts, so there is no reason to believe our current economy won’t as well. The tax-rate reductions in the 1960s and 1980s led to faster economic growth and lower unemployment. Stronger growth also boosted federal income tax revenues, which helped produce the budget surpluses.

Despite the success of President Kennedy’s and President Reagan’s tax cuts — the latter of which helped the economy grow 4 percent per year during the last half of the 1980s — Democrats insist the cuts won’t work this time. A much weaker economy is that party’s only chance of beating a popular Republican president.

But these tax cuts are going to stimulate this economy, once the payroll-withholding rates begin to drop this month. And don’t underestimate the positive impact of the lower capital gains and dividend tax rates, which will drop to 15 percent. This will bring even more investors back into the financial markets, which will raise stocks’ values. It will also encourage corporations to offer dividends, which will make stocks an even better investment and bring additional stability to Wall Street.

The economy’s strengths: The economy was growing at an anemic 1.9 percent in the first three months of this year, but there are signs of strength among the bad signals: New and existing home sales have been incredible — April new-home sale numbers were the third-highest in 40 years, according to the Commerce Department; interest rates continue to fall; home mortgage refinancing has put additional money into consumer pockets; oil prices have fallen; inflation is tame and, despite the buzz, deflation seems nowhere in sight.

In addition, consumer confidence, as measured by the Conference Board, is up, which means consumer spending will be stronger in the second half of this year, reflecting fatter paychecks and the wealth effect from increased stock values.

The economy’s weaknesses: Manufacturing is still in a deep recession. Durable goods orders plunged 2 percent in April — the steepest drop in seven months — after rising 1.4 percent in March.

A lackluster domestic economy is of course partly to blame. So is the strong dollar, which has made our products more expensive and less competitive abroad. And, while the recent decline in the dollar against the yen and the euro has helped a little, a weaker global economy has hurt U.S. exports.

Europe’s economies are barely growing at all, with their latest unemployment rates in the double-digits. Japan and most of the other Pacific Rim nations are in a similar slump.

The countries should take a page out of our growth book and consider cutting their tax rates. If Democrats really think more social welfare, more public works spending and even higher tax rates are the answers to weak economies, let them explain why their prescriptions haven’t worked abroad.

Meanwhile, this administration needs to get much more aggressive about promoting free trade and eliminating tariffs to help lift the industrial and emerging economies to the next plateau.

Trade agreements in Latin America and elsewhere seem to have gotten bogged down lately. These are vast consumer markets where American manufacturers could be doing a lot more business. Now is the time for Mr. Bush to play the free-trade card for all its worth.

The North American Free Trade Agreement was a central pillar in the go-go decade of the 1990s. A larger free-trade zone across South America would put the United States on an even stronger path to growth and prosperity.

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

Copyright © 2018 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide