Stock markets sank today after hearing from House Speaker Denny Hastert that President-elect Bush’s broad-based tax cut should be buried in the new atmosphere of bipartisan consensus. Trouble is, Mr. Hastert is submerged way below the water line in a political submarine. If he raised his periscope to look at the economic landscape he would see that the U.S. economy is moving perilously close to recession.
In fact, fresh economic statistics for the month of November show that both industrial production and retail sales declined — that is, the actual level of those key indicators of supply and demand actually fell. It could well be, if the U.S. government kept monthly GDP statistics, that the economy was actually in a recession in November. Tax cuts are the growth remedy for recession. So Mr. Hastert should think twice before declaring marginal tax-rate cuts to be dead on arrival. Anyway, in political terms, why is it that he sounds more like Dick Gephardt than George Bush?
Fortunately, Team Bush does not agree with Hastert. They are preparing a full-fledged, broad-based tax-cut plan that is being priced out for its budget and economic implications. With an economics transition team led by Lawrence Lindsey and John Cogan, the Bushies are aware of the slumping economy and the moribund animal spirits in the stock market. They also recognize that mammoth budget surpluses during an economic slowdown should be returned to private-sector tax payers in order to reignite growth.
Some concessions are being discussed with respect to picking off moderate Democrats and liberal Republicans. One of them is to make the low-end tax-rate cut (from 15% to 10%) retroactive to January 1, 2001, while the other tax-rate reductions might be held until January 1, 2002. While this approach might have political advantages for the tax-the-rich crowd, it would actually slow economic recovery as upper-end earners whose seed-corn investing is so vital to entrepreneurs might defer their investment decisions until lower tax rates are official.
Let’s wait and see how this turns out. Supply-sider Lawrence Lindsey is very much aware of the economic disincentive of postponing top personal-rate reduction. The whole tax package should be retroed to January 1, 2001.
Speaking of the Bush transition, my inside sources are telling me that the economics team is beginning to shape up. It now looks like the front runner for the key treasury post is Texas congressman Bill Archer, who is lobbying Bush very hard for the position. Bush people would have preferred a Wall Street big shot, but can’t seem to find a satisfactory name. Washington Post reporters who surfaced the idea that Clinton holdover Lawrence Summers might get the job are out of their mind. Summers is an arch foe of tax cuts in general, and especially estate tax cuts and across-the-board personal-rate reductions.
Lawrence Lindsey, who is slated to become the chairman of the National Economics Commission, originally proposed to Bush that that board be eliminated so he could be treasury secretary. Bush, however, wants Lindsey by his side running the NEC, though the body may be renamed to distinguish it from Clinton. Meanwhile, Hoover Institute economist John Taylor, a member of Papa Bush’s economics team, is slated to be chairman of the Council of Economic Advisors. Taylor is a 50% supply sider who is also a monetary expert, and would probably shift over to replace Alan Greenspan at the Fed in a few years.
For the key post of Office of Management and Budget (OMB), Stanford economist and former Reagan advisor John Cogan was offered the job, but turned it down for personal and family reasons. Cogan will however continue to play a key role in formulating the transition budget and tax plan that will form Bush’s official budget submission in February. After Cogan, apparently former Indiana congressman and unsuccessful gubernatorial candidate Dave McIntyre is now the front-runner for OMB. McIntyre was formerly a deregulation advisor to Vice President Dan Quayle, and was always regarded as a budget and tax-cutting hard liner in the Gingrich revolution in the House.
As a cautionary point, none of the these economic appointments are yet written in stone, but these are the front-running names in a group that is being solidified behind the scenes faster than mainstream media sources recognize. More to be revealed.