Jewish World Review Jan. 3, 2002 / 19 Teves, 5762

Jack Kemp

Jack Kemp
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Consumer Reports

Prosperity policies, not partisan politics

http://www.NewsAndOpinion.com -- THE so-called economic "stimulus" bill collapsed in Congress just before the holidays, and it's just as well. The new year provides President George W. Bush a golden opportunity to use his State of the Union Address to propose a true economic growth package based on real prosperity policies: deep and permanent tax rate reductions and reforms accompanied by a significant weeding out of excessive regulations.

By refusing to cave in to Senate Majority Leader Tom Daschle's partisan intimidation to acquiesce to harmful policies of a leftist political agenda, the president has proved his mettle. He now has the political leverage and moral authority to insist that the Congress give his policies a chance in the new year or face the political consequences at the polls next November.

The aborted stimulus bill was based on the erroneous notion (embraced by both political parties, unfortunately) that the economy periodically runs out of steam of its own accord and requires more government spending and temporary tax rebates to juice up consumption. The bill would have done little to remove the policy impediments to growth that are the true cause of the economic recession: high tax rates, excessive government regulation (especially in the high- tech/telecommunications sector) and deflationary monetary policy.

Daschle's version of economic stimulus would have perpetuated economic stagnation by using the downturn as an excuse to expand the welfare state -- both corporate welfare and handouts to individuals. It opened the door to huge new federal entitlement obligations in health care that would have further damaged an already flawed system and placed an enormous future burden on the country. And the bill was chock-full of parochial spending projects that had everything to do with political payout and nothing whatever to do with economic recovery.

Another benefit of the bill's collapse was the lessons it taught. Daschle unctuously proclaimed throughout the negotiating process that the government must "do something" to restart economic growth and cushion the pain of recession suffered by working men and women. Yet he duplicitously worked overtime behind the scenes to scuttle every effort to negotiate a compromise between the parties.

The irony is how much good Daschle's ruthless pursuit of partisan advantage inadvertently did the nation by undermining the stimulus negotiations. He put party politics and partisan advantage ahead of the welfare of the nation and the well-being of those very men and women for whom he cried crocodile tears every night for a month on the evening news. Now is the time for Bush to confront Daschle with a package of real prosperity policies and dare him to deny them to the country.

The episode of the collapsing stimulus bill also taught us some lamentable things about congressional Republicans. They have forgotten every lesson learned from the Reagan years: Giving tax rebates and credits to people only rewards past behavior, not future behavior. It's the marginal tax rate -- the tax rate on the next dollar earned, saved, invested, spent or put at risk -- that affects future behavior, so if you want to stimulate saving, investing and entrepreneurial risk-taking and job creation, cut the marginal tax rate.

Selectively cutting lower-bracket tax rates without also cutting the top rates only serves to increase the disincentive for higher-income people to save, invest and take entrepreneurial risks. Making tax rate reductions temporary only encourages people to shift economic activity into an earlier period and distorts long-run economic decision-making.

Now is the time for Bush to put forward a bold economic growth package based on these lessons, and the most important political lesson from the collapse of last year's stimulus bill: Don't negotiate with yourself, and never lead with your fallback position. Bush should overrule those advisers who are rumored to be urging another tax gimmick on him as the centerpiece of a new economic growth package -- a one-year capital gains tax holiday contingent on a three-year holding period. At the end of the year's holiday, the capital gains tax rate would jump back up from zero to its current maximum of 20 percent.

We don't need any more gimmicks. America needs permanent prosperity policies. If tax rates come down permanently for everyone, if relief is provided from overregulation, if the Fed would switch from interest-rate targeting to a monetary price rule to relieve the deflation, we could once again see the healthy rates of economic growth we saw in the 1980s and 1990s.

During his first year in office, Bush has deservedly accumulated a large stock of political capital, part of which he now must invest for the good of the economy. He should take a page from Ronald Reagan's playbook and throw down the gauntlet as The Gipper did in 1981 when he insisted that Congress stop stonewalling enactment of his economic program: "I believe that the people are ready to chart a new course. We can restore our economic strength and build opportunities like none we've ever had before. All we need to do is act, and the time for action is now."

If we do act now, 2002 will be a much better year than 2001.


Jack Kemp is co-director of Empower America and Distinguished Fellow of the Competitive Enterprise Institute. Comment by clicking here.



Up

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