- The Washington Times - Thursday, March 6, 2003

Treasury Secretary John Snow doesn't sugarcoat his answers. Ask him if he thinks economic growth will continue to weaken, or even shrink and Mr. Snow says this quarter "is going to be a huge question mark with these high energy prices. This is a huge tax on the economy."
While he didn't have the figures he needed, at the time I spoke with him, to forecast the first-quarter growth rate, he bluntly admits the economy is "certainly going to be weaker."
Barely three weeks on the job, Mr. Snow is fast gaining a reputation here and among the G-7 nations (the seven large economic powers) for pulling no punches and as an adept dealmaker.
Unlike Paul O'Neill, his prickly, combative predecessor who criticized President Bush's tax-cut policies in public and private, Mr. Snow is on board with the whole stimulus plan. He predicts it will be on its way to enactment sometime in April "when we'll immediately begin to see a big bounce in the economy."
The former CSX railroad executive is a true believer. He believes in the economic fundamentals of free market capitalism, especially the power of lower tax rates to stimulate badly needed risk-taking equity investment.
The economy grew at an anemic 1.4 percent in the fourth quarter, and administration economists do not expect the first three months, or the first six months, of this year to be much better especially with the markets in paralysis over a looming war in Iraq.
Mr. Bush's scores on his handling of the economy are at 43 percent, and Democrats think that a weak economy no matter how victorious the United States may be in Iraq will make him a one-term president.
However, Mr. Snow thinks much if not most of the economy's troubles stem from Iraq "and the psychological effect it has" and once that cloud has passed, things are going to improve.
"I think the geopolitical issues will be resolved, and as they are resolved they are not going to hang over us forever we'll very much get a replay of what happened in [the Persian Gulf war of] 1991. Oil prices came down, and the markets put the war behind us," he said. "So I would expect that to happen again."
Mr. Snow daringly ventures into military forecasting, saying that "we are looking at a three- to six-weeks time period" for the war to run its course.
But victory against Baghdad will not be enough to return the economy to full health, he adds.
Even without Iraq in the equation, "the recovery is more fragile than it should be," he said.
"We won't be on the growth path we could be on unless we get the president's package. The sooner it becomes clear that the president's tax cut package is going to go, the sooner we will get America's economy on the right path," he said.
Mr. Snow knows that a healthy economy is based on strong fundamentals. "One of these fundamentals is not punishing investors, not having, next to Japan, the highest marginal tax rates on capital," he says.
"We want more risk capital at play. As more equity capital is put into the system, you reward innovation, risk-taking and entrepreneurial activity. And with that larger capital stock, you get higher real wage rates," he said.
This means cutting the marginal tax rates as Mr. Bush has proposed and ending the double taxation of dividends. That will boost stock prices and equity investment. And as investment grows, that will give businesses the capital to pay for plant expansion, new machinery and tools, and that means worker productivity goes up.
"You won't get much argument from economists, left, right or middle, that as labor's marginal productivity goes up, the marketplace will take real wages up," he said.
Republicans, whose continued hold on Congress is contingent upon the economy recovering before next year's elections, are putting Mr. Bush's plan on a fast track. Outside of Iraq and the war on terrorism, "there is no higher priority," a White House adviser told me.
House Ways and Means Committee Chairman Bill Thomas, California Republican, is holding hearings and hopes to draft a bill by the end of March. Senate Finance Committee Chairman Charles Grassley, Iowa Republican, tells me he will not wait for the House but will prepare a bill almost simultaneously "so we can be ready to go as soon as they do."
Mr. Bush's plan is based on "a very powerful idea, that you should only tax all income once," Mr. Snow says. The federal tax on dividends hits investment income twice, once when it is earned and again when it is distributed to stockholders and pensioners.
There's nothing fundamentally wrong with this economy that an infusion of job-producing, wage-enhancing investment capital cannot fix, Mr. Snow told me.
If Mr. Bush's plan passes as is, he forecasts that over the next two years the annual economic growth rate will be 1 percent faster than it is projected to be.
"We're going for the whole package," he says.

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

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