Greater Opportunity Through Innovative Change
from The White House
WASHINGTON, D.C.—Supporters of President George W. Bush’s fiscal stimulus plan have drawn comparisons to a fiscal plan advanced by Democrat John F. Kennedy nearly 40 years ago. They overlook one important difference: a Democratic Congress approved the Kennedy plan in 1964 while the U.S. economy was expanding.Today, the economy is contracting, and in greater need of fiscal stimulus then it was four decades ago. But leading Democrats, including Senate Majority Leader Tom Daschle, D-S.D., seem unswayed by appeals for fiscal stimulus.
Senator Daschle and other wavering
senators should be concerned. Consider one key economic indicator: industrial
production. Starting in October 2000 industrial production has
Standard fiscal policy utilizes government tax and budget policies for the purpose of achieving goals such as ending recession.
The Bush fiscal stimulus plan was explained to a small group of policy analysts and economists, including an Arkansas Policy Foundation official, during a series of briefings Dec. 13 at The White House. The need for a stimulus package is noted in a memo circulated by a senior Bush economic adviser. “(T)here is a wide range of estimates that reflects uncertainty over the economic outlook—due in part to uncertainty over security and its effects on confidence—that reinforces the prudence of policies that address downside risks for the economy in the quarters ahead.”
President Bush himself, during a 20-minute meeting with the group, observed, “We believe we need an economic stimulus bill that actually stimulates the economy.” Describing his administration’s preference for fiscal stimulus involving tax cuts, rather than Keynesian-style spending increases, President Bush said, “Government can spend money but it cannot put hope in people’s hearts.”
The White House briefings took place against the backdrop of negotiations between Senate Democrats, House Republicans and Bush administration officials. One point of disagreement is a Bush proposal to accelerate a scheduled reduction in the 27 percent federal income tax rate to 25 percent in 2002. Democrats have opposed lowering tax rates, but indicated they would accept a small rate cut if spending provisions for unemployed workers were increased (Washington Post, Dec. 15). Republicans prefer tax cuts to new spending.
Another area of disagreement involves the corporate alternative minimum tax (AMT). House Republicans support repeal of the AMT. The Bush fiscal plan provides an exemption so that the tax does not increase the number of businesses paying the tax. A senior Bush economic adviser estimates this will result in approximately $17.9 billion of tax relief in 2002 for more than 36 million taxpayers, or one-third of all income taxpayers. Senate Democrats oppose outright repeal, but are considering support for a “temporary” suspension of the tax. They have rejected proposals to repeal portions of the AMT. Partial expensing is another feature of the Bush fiscal plan. It targets business investment directly by lowering the tax on new investments. The plan allows all businesses to immediately deduct 30 percent of the cost of qualifying new business investments for a period of three years starting Sept. 11, 2001. It also allows small businesses an enhanced immediate deduction for up to $35,000 on qualified new business investments, and increases the beginning point of phase-out to $325,000, for a period of three years starting in 2002.
The Bush administration has moved twice, this year, to reduce taxes on capital investment in response to the economic downturn. Both Arkansas U.S. Senators, Democrat Blanche Lincoln and Republican Tim Hutchinson, supported the first plan, which cut income and estate tax rates. The latest Bush plan, coupled with the Federal Open Market Committee’s decision to cut the intended Fed Funds rate 11 times this year—from 6.5 to 1.75 percent—underscores the gravity of the current recession.
Bi-partisan control of Congress (Democrats control the Senate and Republicans lead the House) means some compromise on the Bush fiscal plan is unavoidable. But stalling under present conditions is akin to playing a game of chicken with the U.S. economy.
It is appropriate, under these conditions, to consider a U.S. President’s words on fiscal policy.
“Our true choice,” this President said, “is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other.”
Later he said, “In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenue in the long run is to cut the rates now.”
The President? Democrat John F. Kennedy, unveiling his fiscal plan to the New York Economic Club in 1962.
Footnote: Who steered the Kennedy fiscal plan through the U.S. House Ways and Means Committee? Answer: Arkansas Democrat Wilbur D. Mills, the committee chairman.