SOTU
By Money Politic$
A few quick and preliminary thoughts on the President's excellent State of the Union message.
Stock markets and Wall Street will love this pro-growth and strong - on- defense policy statement, just as markets loved the Bush-sponsored Iraqi election success. The President proposes to make the 2003 tax cuts permanent, which means permanently lower tax-rates on personal income, investor dividends,capital gains, along with elimination of the estate tax. Hence we have a restatement of the economic power of supply-side incentives to work, save,invest and grow the economy. Eighteen months after passage of those tax cuts, the domestic private sector -- which is roughly 80% of the total economy-- expanded at a 5.4% rate for all of 2004. A cautious Fed has kept core inflation at a minimal 1.5%. Unemployment is a low 5.4%. Politicians pay careful attention to real world results, not academic treatises. So it is not surprising that Bush remains committed to his successful supply-side experiment.
Additionally, the President saved a prominent mention for the tax reform panel headed by former Sen. Connie Mack. Space is always scarce in these documents as every executive department and agency try to get their pet program ideas into SOTU. Featuring tax reform is therefore an important signal of a key presidential priority. Indeed, making existing tax relief permanent and then highlighting the need for a new code "...that is pro-growth, easy to understand, and fair to all" becomes an even stronger second term commitment to incentive economics.
Another growth-inducing bonus in the speech was the President's surprise announcement that" My budget substantially reduces or eliminates more than 150 government programs that are not getting results, or duplicate current efforts, or do not fulfill essential priorities." Details will come in the soon to be released budget, but the interest group sqeals will begin tomorrow as the budget cut leaks hit K Street. Overall, discretionary spending is targeted below inflation. As financial markets know full well, lower federal spending releases resources to the private economy that will be used productively to start businesses and create jobs.
Then there was the heavy emphasis on Social Security reform, including another surprise announcement: young workers choosing personal retirement accounts will eventually be able to set aside four percentage points, or roughly two-thirds of their payroll taxes, in the accounts. At lower tax rates on saving and investment,young workers will have strong encouragement to redirect their taxes to the investment markets where the money will finance entrepreneurship and creative technological advances rather than support unproductive government spending.
Over time this will be a huge contribution to economic growth. In effect, the social security reform will reduce government spending and increase personal saving. If unnecessary budget programs are indeed permanently eliminated, then Bush's fiscal restructuring will increase both public and private saving. For all the political screaming about "risky" market investing, the fact is that no respectable economist in either political party should object. For however dubious the evidence, honest Keynesians in the Democratic party would admit that greater national saving would reduce our reliance on foreign capital inflows, thereby narrowing the trade deficit and strengthening the dollar.
On foreign policy the President reaffirmed his inaugeral speech vision that "The only force powerful enough to stop the rise of tyranny and terror, and replace hatred with hope, is the force of human freedom." Building on the spectacular success of the Iraqi elections,the President issued an unmistakable warning to Syria to stop safe-harboring terrorists-- including, of course, the Saddamite generals who are based in Syria as they conduct the counterrevolution against a newly freed Iraq.
Gen Casey has just been given a free hand to do what is militarily necessary to stop the insurrectionary flow of money and murderers from Syria into Iraq. Also in his speech, Bush issued a clear call to revolution to the pro-democracy forces in Iran. What's more, both these rogue nations were warned not to purchase fissile matter from North Korea.
And quite possibly, the President made his first formal commitment to leave Iraq. Not a timetable, of course, but he did announce a new push to train Iraqi security forces. "And when that result is achieved, our men and women serving in Iraq will return home with the honor they have earned."
On economic growth and national security, George W. Bush is steadfastly maintaining his vision of liberty and freedom. Watch world stock markets open up strong in the morning. Large new steps toward peace and prosperity will be very well received. |
