Bush’s Other Battlefield
He’s got to lead the economy.

Mr. Moore is president of the Club for Growth
September 24, 2001 8:30 a.m.

ast Wednesday House Speaker Dennis Hastert convened a meeting of the congressional leadership and three economists to discuss an economic stimulus package to reverse the sinking stock market. The principals in the meeting included Hastert, Trent Lott, Tom Daschle, and Dick Gephardt. The economists Hastert invited were Fed Chairman Alan Greenspan, Clinton Treasury Secretary Robert Rubin, and Bush economist Larry Lindsey.

The meeting couldn't have gone worse and is an indication of the lousy advice Republicans are getting on the economy. Incredibly, not a single one of the economists there supported the most urgent stimulus measure of all: a capital-gains tax cut.

Greenspan told the congressional leaders that they should wait two or three more weeks until he has "better data" before Congress passes an economic-rescue plan. (Apparently the near 1,000-point decline in the Dow Jones isn't plain enough evidence that the economy is in a world of hurt right now.)

Robert Rubin then chimed in to spout traditional Keynesian orthodoxy, arguing that any tax-cut plan should be "temporary." That is to say that it should have no lasting positive effect on the economy. Rubin advised Congress to expand the earned-income tax credit to low-income people who don't pay any income taxes, so they will go out and spend.

Lindsey argued for a package of business tax cuts, including a corporate income-tax rate cut, which will help the economy, but not nearly as much as or as rapidly as a capital-gains cut to 10%. I find myself totally mystified by this White House: The Bush team seems inflexibly opposed to capital-gains reductions even though almost every supply-side economist has continually advised them that this would help the stock market more than any other policy change on the table. We could have had a capital-gains tax cut four months ago as part of the original Bush tax plan if the White House had shown even a scintilla of interest. We could have one right now if Bush would simply endorse it. So far, excruciating silence from 1600 Pennsylvania Ave.

Finally, Gephardt and Daschle reportedly advocated "more infrastructure spending" to get the economy moving again. This idea is almost laughable. The federal appropriations have been growing by about 7 percent per year for the past three years. This year federal spending is likely to rise by at least $100 billion, not counting the extra $40 billion just recently approved for "emergency spending" for the military and the massive clean-up job that lies ahead. As NRO's Larry Kudlow has shown, the only sector of the American economy that has been growing since the start of the year has been government--state, local, and federal.

Lindsey, to his credit, zinged the Democratic leaders by noting that they are in effect endorsing the Japan recovery plan for America. The Japanese government has virtually paved over the entire island with public-works spending, and this former economic superpower is now entering its 11th year of recession.

The only two people in this meeting that had the right idea on the economy were Hastert and Lott. They both want to cut the capital-gains tax to 10%. But they were isolated--surrounded by a sea of boneheaded thinking on the economy.

The good news is that House Republican leaders Dick Armey and Tom Delay are unflinchingly committed to capital-gains reduction as a "must pass" item of any economic stimulus bill. Increasingly, they are confronted with the astonishing argument that a capital-gains tax cut will cause a wave of selling and thus depress the stock market. Henry Aaron of the Brookings Institute made this silly argument in the Washington Post the other day. And the White House has similar concerns. But every capital-gains tax cut in history has raised stock values, not lowered them. A capital-gains tax cut increases the after tax value of stocks, so it is impossible for the stocks to fall in price. A capital-gains tax cut is desirable now precisely because it will raise stock values and reverse the catastrophic market slide over the last week.

I am increasingly worried that Bush and Congress — in the name of bipartisan unity — will enact a completely impotent economic stimulus plan. This is the greatest economic emergency our nation has faced since the stagflationary 1970s when we faced a gusher of double-digit inflation. This is not the time for half-measures or for tinkering. In just the past week American investors have lost a horrific $1 trillion in asset values. The entire budget surplus--or the $80 to $100 billion or so that is left of it--should be devoted to growth-stimulating tax cuts. If Democrats won't go along, let them have $40 billion for new spending. That is a trivial price to pay in exchange for capital-gains tax cuts, expensing for big-ticket business capital purchases, and acceleration of tax-rate cuts in the original Bush plan. Why cut tax rates in 2005 and 2006? Do it now!

Bush needs to lead on the economy — not follow a rudderless Congress. He now has an 80% approval rating with voters. Like his father exactly 10 years ago, who had a 90% approval rating at one point, George W. can command almost whatever he wants out of Congress. Bush Sr. frittered away that political capital through indecisiveness and lack of action.

Bush must immediately send an economic-rescue plan to Congress insisting on three items: Cut the capital-gains tax in half; give businesses real tax relief; and fast forward all the tax-rate cuts in his original tax plan to an effective date of 9/11/01.

It took just 48 hours for Congress to pass an emergency military appropriations to fight the war against terrorism. It shouldn't take more than 48 hours for an emergency plan to fight the war at home against recession.