12/18/00 11:40 a.m.
Dear W.
Unsolicited tax-cutting advice for the president-elect.

By Stephen Moore, president of the Club for Growth & NR contributing editor

ear W.:

During your campaign for president when you argued for a big tax cut, the truth was we didn't really NEED a tax cut. It would have been nice and it would have been warranted as an anti-recession insurance policy. And you were right that taxes are way too high for a country enjoying peace and prosperity. And you were exactly right that cutting taxes is the best way to prevent new spending. But a tax cut wasn't economically essential. What luck! Now a tax cut really is imperative. Fiscal drag is finally weighing down the economy in general and the high-tech sector in particular and a tax-cut rescue plan is urgently needed. The tax burden has risen from 18 to 21.5 percent of GDP in just the past 5 years. Last year, total public-sector revenue surpluses were $300 billion--that's about 4 percent of GDP. Fiscal policy is way too tightly wound.

If you don't cut taxes in your first 100 days, your presidency could be in trouble from the start. You've got to get the economy out of this rut before the wheels start sliding and digging the hole deeper. All your political enemies who advise you to shelve the tax cut for now, or to tone it down so it doesn't help the rich so much, (people like Bob Dole, for example) are giving you precisely the wrong advice. That is, after all, what one would expect from one's enemies.

Even some of your political allies are serving up really dumb advice. In Friday's Washington Post Denny Hastert is quoted as advising you to put issues like school funding, debt retirement, and health-care reform ahead of tax cuts. And then as if an afterthought, Mr. Hastert says: "We can probably give Americans some tax relief to boot." Wow, Governor, you may be up against some pretty dense thinking. (Let's hope that Mr. Hastert was misquoted — this wouldn't be the first time for the Post.)

If anything, we need a bigger tax cut, not a smaller one, than the one you campaigned on. And features of your tax plan need to be refined given the new reality of economic slowdown on the horizon.

So here are a few words of advice in hopes that your economics team is paying attention:

1) Make the tax cut retroactive to January 1, 2001. We need a supply-side fiscal stimulus immediately — not in six months or even 100 days. Making the tax cut effective 1/1/2001 will trigger economic activity instantly regardless of when the tax cut is signed into law.

2) Eliminate the death tax immediately. The GOP Bill is flawed. It gets rid of the death tax in 10 years. That'll never happen. Even Democrat Charlie Rangel wants the tax rate lower in the first few years than the namby-pamby GOP bill. Repeal the death tax — all of it right now. Estates should be taxed, if at all, at the capital-gains rate.

3) Cut the capital gains tax to 15 percent now. There are two reasons. First, the last cap-gains cut was an unqualified success: higher revenues, more savings, and a surge in asset values. All the arguments against the cap-gains cut are now demonstrably wrong. Second, the cap-gains cut would be the single best way to revive the NASDAQ , which as you know, is down more than 40 percent over the past year.

4) Don't you dare give up on the income-tax-rate cuts. The rate cuts and the death-tax repeal are the most economically beneficial features of the plan. In the past 18 months Germany, Japan, France, and even Russia have cut tax rates. The U.S. hasn't. What's wrong with this picture? We're losing our competitive edge. Tax-rate cuts must be a non-negotiable item in your tax plan. Sen. Grassley, the incoming chairman of the Senate Finance Committee says that you should promote populist tax cuts with Democratic support, such as marriage-penalty relief. But marriage-penalty relief is fine, but it has no supply-side growth incentives. We need rate cuts.

5) You need to make the switch to dynamic scoring of tax policy changes. Republicans have been complaining about static revenue analysis for 20 years. Now they can and must do something about it. The GOP now has control of the computers. Fix them. A model that predicts that when we cut the capital-gains rate, the Treasury is going to lose revenue when in fact it gains boat loads of revenues is worthless. Both Congress and the White House must make the switch to dynamic scoring of tax changes. This has to be done immediately.

6) End real-income-bracket creep. Your tax bill must insist upon indexing the tax brackets for the increase in nominal income each year. This doesn't cost any money in the near term but prevents the insidious hidden tax hikes that cause the tax burden to rise automatically over time by pushing more and more people into higher tax brackets.

You've got a mandate to cut taxes. Use it.