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Republicans have a coherent economic policy, they are hiding it
well. They have spent most of the year making Keynesian arguments
for watered-down supply-side measures. Thus the tax cut passed this
spring was supposed to "put money in people's pockets"
to be spent. When Democrats correctly pointed out that cutting tax
rates effective in 2006 would not in fact lead to a spending boom,
the Republicans were forced to agree to a tax rebate. The importance
of improving incentives to work, save, and invest was lost.
The House Republicans'
stimulus bill is the same conceptual morass. It accelerates the
date at which the spring tax cuts become effective — but not
for the top brackets, lest Democrats balk. It cuts the capital-gains
tax rate by a puny two points. And it includes another round of
tax rebates.
The Bush administration
has largely been AWOL during this debate, except to insist on bipartisanship
now that we are at war. What's the risk of making its case? That
Democrats will stop supporting the war because they dislike Republican
economic policy? It's an unlikely prospect, and one for which the
voters would punish the offending party soon enough. The administration
may hope that the economy will recover on its own, and the drop
in oil prices and interest rates certainly makes that a possibility.
But since Congress is going to pass a stimulus, the administration
should shape that stimulus to be effective.
In any case,
the administration lacked a coherent economic message before either
the terrorist attacks or the drop in oil prices. Part of the trouble
is that the man who should be its voice on economic matters, Treasury
secretary Paul O'Neill, is manifestly unsuited to the job. He spent
the first months of his tenure trying to improve worker safety and
office cleanliness at Treasury — when he wasn't trying to get
Bush to regulate carbon-dioxide emissions. In congressional testimony,
he undercut the administration's pitch for tax cuts. He has been
a force within the administration for rebates. Rather than constructive
action, all conservatives have gotten from O'Neill is pie-in-the-sky
talk about abolishing the corporate income tax.
When President
Bush nominated him, he said O'Neill was "a steady voice,"
someone "who can calm people's nerves, calm the markets."
Instead, the secretary's most notable effect on the markets has
been to roil them with ill-considered remarks about the dollar.
One journalist concluded of O'Neill that "if he can't learn
to keep his lips buttoned and continues his gaffe-prone ways, he
risks being branded permanently as a buffoon." And that journalist
was one of O'Neill's defenders. At a moment of economic difficulty,
we have a Treasury secretary who inspires confidence neither on
Wall Street nor in Washington. O'Neill should go.
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