Posted on 04/12/2003 6:29:09 AM PDT by Noddegamra
Bush's Next War to Liberate the American Economy by Don Luskin (April 12, 2003)
Summary: Capitalism means economic liberty, and Bush understands that you can't run a war of political liberation abroad without economic liberation at home.
Last week I sat across a table from President George W. Bush in the Roosevelt Room of the White House. He told me and a dozen fellow economists that "the American economy is a theatre in the war on terrorism." With steely conviction he told us that he intends to win the war to liberate Iraq, and he intends to win the war to liberate the American economy.
That's the key message from an hour and a half's roundtable discussion with the president and his economic team. There, interacting with a very exacting group of professionals, Bush displayed both masterful knowledge and inspiring passion about his economic program, and he revealed a deep understanding of how economic security is inexorably linked to national security.
Bush told us that he is frustrated by critics who ask, "How can we have a war and a tax cut at the same time?" The president argues that for this kind of war, we can't not have a tax cut. Yes, we must spend on war and homeland security, too. But that just means we must take steps to grow the economy so that the expense of war and security will be as tiny a fraction of the overall economy as possible. Bush's tax-cut proposals now before Congress are all about enabling exactly that.
Eliminating the double taxation of dividends and retained earnings will increase the efficiency of capital investment. The result will be higher stock prices immediately — by at least 15% as effective after-tax yields jump, and more in the longer run as corporations reap the benefits of a lower cost of capital. But the best result will come when we harvest the fruits of more-efficient capital investment in all the years to come. The fruits include millions of new high-quality jobs and new breakthrough technologies in both the civilian and military spheres.
Nonplussed by opposition in Congress — from those who just can't seem to see how all this will work — Bush said, "Sometimes I think some of these guys just don't like capitalism."
And therein lies another essential nexus between economic security and national security. Capitalism means economic liberty, and Bush understands that you can't run a war of political liberation abroad without economic liberation at home. He is quick to point out that his tax-cut proposals are designed from top to bottom with fairness in mind. His dividend initiative ends the unfair double taxation of this particular form of income. And his proposed cuts in personal income-tax rates are designed so that, as he says, "every American who pays taxes gets a tax reduction."
The president is very sensitive to the question of whether these tax cuts will increase government deficits. But he thinks that some of the opposition in Congress — particularly in his own party — is taking the concern over deficits too far. Speaking like the Harvard MBA that he is, Bush argues that deficit financing is entirely appropriate when it is for the sake of a valuable long-term investment. What could be of greater long-term value than simultaneously making the world safe from terrorism and reinvigorating the growth prospects of the American economy?
And besides, even the too-pessimistic Congressional Budget Office forecasted deficits arising from the Bush's tax cuts at less than 1% of GDP over the coming decade. I share Bush's frustration when he talks of meetings with Republican deficit-hawks and explaining all this, only them to hear then say, "Well, yes . . . but I just don't like deficits."
President Bush is boldly looking beyond all this. He has pushed through a thicket of domestic and global opposition to pursue an ambitious vision of freeing the world of Saddam Hussein's weapons of mass destruction and, with the same stroke, planting the seeds of democracy in the Middle East. And now it looks like a good bet that he will overcome opposition to his economic agenda, which in its own way is no less bold.
To do that will require enormous political capital. On the verge of a spectacular victory in Iraq, Bush may have that capital within his reach. But it ain't over till it's over, and Bush is entirely aware that while the war in Iraq rages, the American public and American markets will be on an emotional roller coaster. But his priorities are clear. He told us, "I'm not going to let the stock market drive the war. Tommy Franks drives the war."
But if this war concludes as favorably as it looks like it just might, then Bush is going to emerge with all the political capital he needs. And he told us that he's committed to spending it. He told us that a president "is only here for a short while," and has to spend his political capital on "big projects." For the economy, Bush told us that means no less than a vision to "forever change this country into 'entrepreneurial heaven.'"
When I was invited to this meeting with Bush and his team at the White House, I really had no idea what to expect. But when I walked out of the Roosevelt Room, I was convinced that the ideals of security and prosperity have a very loyal and powerful friend in this president. He understands that the pursuit of these ideals is, in fact, a single integrated struggle. And he has the conviction and the audacity — and soon, the political capital — to win.
Sounds good, but actions speak louder. I hardly feel liberated after the education bill, the farm bill, the steel quotas.......
To return to a capitalist economy, we need a reliable money system. Most of the cyclical economic problems we now face originate with the Federal Reserve.
And the tax system is not just a problem of double taxation of corporate income--the tax system itself is invasive of the economic incentive system. Artifical incentives which are in Congresses view appropriate detract from operation of the free marketplace.
The tax system needs to return to a focus on raising the money appropriate to a limited national government focused on a narrow set of constitutional objectives.
A National Sales tax will not work. Many of the Washington DC National Sales tax advocates are in fact pursuing the objective of eliminating the national government. Well and good. But the sales tax obviously will not work to effectively address the revenue taxation objectives and its advocates are not straightforward in their political advocacy of elimination of the national government. Thus I think they are doomed to failure.
The sales tax requires too high a rate to raise revenue; is too heavy a burden on lower income groups to be politically saleable; carries a very heavy overhead burden on those who would have to collect and remit it; and will be impossible to effectively enforce.
Tax reform requires political acceptance of the proposition that lower income groups must pay some of the tax burden; reduction of the total revenue demand; a stable currency; and complete elimination of the non-revenue related objectives of the tax system.
Reduction of the revenue demand requires a fixed Constitutionally enforceable definition of the role of the federal government. In that environment a limited, lower more or less flat rate income levy could presumably be acceptable to finance the activites of the federal government.
Although most of this is politically out of the question at the moment, we are facing an economic crisis in which, four or five years hence, we can expect political reception for relatively radical reform. We need to be prepared.
Bush's reasons for a tax cut are as changing as his reasons for the Iraq war.
Before his election, he said the economy was great and what better time for tax cuts. When the economy turned sour, he said what better time for tax cuts. Before 9/11 it was his first order of business. After 9/11 it is part of the war on terrorism.
In short Bush represents those wanting tax cuts even if it means raiding the inviolate social security 'lock box' or passing the deficit along to the next generation.
"Tax cuts, it's what for political contributions."
Have the author mention to the President next time they sit down that NASA is mainly being wasted as an impetus to the economy. If NASA were oriented to encourage private development of outer space resources a whole new segment of the national economy would be created. A new industry, a huge new industry. Sending man to Mars and beginning the settlement of Mars would encourage kids to study math and science and bring investment funds out of fat pockets. It's a sure winner, and it doesn't have to cost the taxpayer anything.
RightWhale's Lemma: Private property rights to celestial resources will encourage private investment.
Thank you, for not tinfoil reasons to watch the signs of doom & goomsters.
I'm not sure I agree with all your comments on the National Sales Tax, but I'm not sure I disagree, either. I think a sales tax is preferrable to an income tax. But then, I think a fees-for-service system is preferrable to any sort of tax-based funding strategy for government.
Wow, sarcasm. Bush isn't just smarter than his opposition would like to believe, he's also got a better sense of humor.
Yes, George. The opposition detests capitalism and economic liberty. That's the core meme complex of socialism, last time I checked. But something tells me you knew that already.
" In short Bush represents those wanting tax cuts even if it means raiding the inviolate social security 'lock box' or passing the deficit along to the next generation. Tax cuts, it's what for political contributions."
I am not a fan of Bush II. Didn't vote for him and probably won't vote for him next time either. And the further probability is that he really doesn't understand the tax issue as it relates to the economy anyway.
That said, however, you are unduly harsh on the subject. Facts are that one of the significant reasons for the economic contraction is that deals that would create jobs and growth are not getting done because there is no after tax return on the investment. You got to reduce taxes so that if and when people can do deals that generate some return, they get to realize some of it.
The taxes are a further problem because, as a former IRS agent points out here, nobody is paying income tax any more except W-2 and 1099 people. That is not fair.
Big hitters from Microsoft are ducking any income tax at all with a foreign currency exchange paper loss transaction. They make big contributions to liberal Democrats. It does cost around 10% to pay legal and accounting fees and other transaction costs but that is a lot less than the tax bill on the $40 million profit.
Its a lousy system that demands radical reform.
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