Bush poised to wage an economic revolution
By ROBERT TRIGAUX, Times Business Columnist
Published November 7, 2004
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The CEO president is back in the saddle again.
Wasting no time after last week's election victory, a supremely confident President Bush mapped out an aggressive - some say radical - agenda to reshape the American economy through tax and Social Security overhauls, and to make government less intrusive on businesses and entrepreneurs.
So much for a traditional, sedate second term.
Behind Bush's economic strategy is his firm belief, fueled by advisers who see a rare conservative convergence of power in Washington, that a major overhaul of the economy could usher in a new era of significantly higher growth for the United States.
That's a big if, says Daniel Altman, an economist and author of this year's book, Neoconomy: George Bush's Revolutionary Gamble with America's Future. The title refers to the experimental push by neoconservative economists to reshape how the country grows by eliminating taxes on inherited wealth, investments and corporations.
If Bush's overhaul comes to fruition and economic growth ratchets up to a higher level, everyone will be a bit richer and the method will have proved worthy, Altman says. (An increase of just 0.1 percent in the economy's typical 3-percent rate of growth would boost the nation's annual income by $10-billion.)
If Bush's plan fails, the country could face an economic nightmare.
But Bush is seizing what he calls a "mandate" from his 3.6-million margin out of 115-million voters. True, Bush won more votes - 59.2-million - than any presidential candidate in U.S. history as a result of the heavy turnout. But it is also true that, for the same reason, more Americans cast their votes against Bush than against any other U.S. presidential candidate in history.
No matter. With more Republicans elected to Congress and the Democrats in tatters, Bush has an unusual momentum to make permanent his tax cuts that expire in 2010, and drive some economic proposals not seen since Ronald Reagan's days back into the American mainstream.
"I earned capital in the campaign, political capital, and now I intend to spend it," Bush said in a savvy remark seized on by reporters at last Thursday's postelection press conference.
Bush's economic ideas are not yet set in stone, nor assured of passage. He has mentioned some of them in general terms during his re-election campaign, referring to the virtues of an "ownership society." But each of his ideas of personal ownership embraces an historic shift in how the federal government gets its money and assists its citizens.
Some proposals under consideration call for a flat tax (everyone pays the same tax rate), with fewer exclusions. Another calls for the elimination of the personal income tax, replacing it with a consumption or national sales tax.
While savings and investment income would become tax free, people who work and receive paychecks could be taxed more heavily to make up for lost tax revenues.
Any tax overhaul is a complex task fraught with conflict.
Who might not be thrilled with a national sales tax? Perhaps retailers. Who would not love to have their savings from interest and dividends free of tax? Perhaps people who live taxed paycheck to taxed paycheck and have little to save.
Thanks to cuts in the tax rate to 15 percent on dividends, money earned through investments is taxed at lower levels than money earned from working.
It's about balance and fairness, suggests Neoconomy's Altman. "If people shift their income away from taxable sources, the people who are left paying taxes will eventually get the message, and perhaps rebel," he said.
Bush envisions a tax commission to get the ball rolling. Treasury Secretary John Snow, in a recent interview, said every tax option will be examined from every angle before offering a final set of recommendations.
On Social Security, Bush envisions reshaping it so younger workers can divert some of the taxes they pay to support the system to create personal savings accounts. These voluntary accounts would become the responsibility of individual investors and would be invested in the stock markets by a Wall Street delighted with a huge, new business opportunity.
Critics charge Bush's plan to privatize a piece of Social Security would drain needed payroll taxes from the system and add up to $2-trillion over 10 years with such a significant reworking of the way Medicare works. Borrowing more money to pay for the transition would aggravate an ugly government deficit.
Bush argues Social Security (and Medicare) are living on borrowed time and money, so some type of overhaul is inevitable.
"We must lead on Social Security because the system is not going to be whole for our children or our grandchildren," he said last week.
Admirable goals. Risky road map. Proposals once considered fringe economics might now get serious federal attention.
"Now comes the revolution," conservative consultant Richard Viguerie was quoted by the New York Times last week as he watched the final early-morning results of the election. "If you don't implement a conservative agenda now, when do you?"
Nothing dramatic will happen overnight. Despite even greater Republican control of Congress, Bush has his work cut out for him selling serious tax and Social Security changes to the nation.
A Bush mandate is not the same thing as a national consensus. And what Bush gained in political capital by winning a second term, he might now lack in real capital.
The large federal deficit that ballooned to $415-billion in Bush's first term could prove a major obstacle to the president's economic goals.
From a federal budget surplus in 2000, the size and rapid escalation of the deficit would hamper any new presidential agenda. Bush's plan is a troubling fiscal combination that calls for making permanent a series of tax cuts, while at the same time spending heavily on Middle East wars and homeland security.
Bush says his economic policies will whittle the deficit in half in five years. How? Control federal spending and depend on his tax cuts and other incentives to boost economic growth which, in turn, would raise federal tax revenues to pay down the deficit.
This idea of growing out of the deficit by continuing expensive fiscal stimulus is not new. It was long thought to be unsound, but has regained currency among conservatives, who believe Reagan's deficit spending had a hand in President Clinton's economic boom, which balanced the budget.
In Bush's case, repeated use of tax cuts and deficit spending in his first term might have left the stimulus cupboard bare for the second.
Some economic experts are more than willing to give Bush a chance. Others remain unimpressed by his four-year track record.
"Bush's proposals will only help increase the budget deficit," said Scott Brown, chief economist at the Raymond James & Associates investment firm in St. Petersburg. "Most firms I talk to indicate that payroll taxes and surging health care insurance costs are a serious detriment to new hiring. Will Bush do anything about that? I doubt it."
Bush sold himself to enough voters last week to keep his job in Washington. Now he's got to do it all over again to fulfill his economic mandate.
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