Jewish World Review March 23, 2001 / 28 Adar, 5761
http://www.jewishworldreview.com -- LAST week's deep plunge in the Dow sent political tremors through the ranks of Republicans, many of whom now say that President Bush's tax cuts need to be beefed up if they are to provide any stimulus to this year's sluggish economy.
Even before the Dow's fall to below 10,000 on March 14, there were signs of fear and insecurity among GOP leaders that the U.S. economy is tanking and that Bush's gradually phased-in, six-year tax-cut plan will offer virtually no stimulus this year (a mere $5.6 billion in a $10 trillion economy) to halt its decline.
Republican leaders who spearheaded Bush's tax-cut plan through the House earlier this month had been talking up the need for a stronger first-year stimulus, but they kept to the White House message and stood behind the plan that is now before the Senate. But all that changed last week, when a panicked Wall Street went into a steep slide and new indicators showed the economy growing weaker.
That's when House Majority Leader Dick Armey, an economics professor by trade, decided to act. The economy is in a dangerous state, he told his colleagues, and the president's $1.6 trillion plan needs to be dramatically enlarged, perhaps to $2 trillion. It was time to go public with his concerns, so he sounded the alarm.
In a memorandum to his House colleagues, Armey delivered a surprisingly blunt reappraisal of the president's plan, which he had helped push through the House with high hopes. Now he says that Bush's plan is "a good start. But his plan was drafted in 1999, when the economy was much stronger."
While the president continues to characterize the economy as "sputtering," Armey has a much stronger description: "an economic emergency." And he thinks that the Bush plan is too timid in the short-term to deal with it.
The stock market's sharp decline "again shows us that we must consider a much larger tax cut. Today, circumstances have fundamentally changed," he said in his memo.
Bush may still be saying that the size and structure of his plan are "just right," but Armey -- in a break with the White House line -- no longer believes that. He is telling his party that it should not tie itself to the president's tax-cut numbers or the timing of the cuts.
"We should no longer be restricted by a proposal or a tax-cut number that was not designed for the situation we face today," the House Republican leader said.
Armey's break with the administration about what is needed to revive the economy is the latest in a series of doubts expressed by Bush's GOP allies in Congress and even his economic adviser in the White House. House Speaker Dennis Hastert and Senate Majority Leader Trent Lott are similarly fearful that the U.S. economy is being pulled down by panic on Wall Street and the rapid deterioration of major global economies from Japan to Europe. They believe that stronger medicine is needed to boost business investment. Both are calling for making a cut in the tax on capital gains part of the tax plan.
But when I asked Karl Rove, the president's top political adviser, about that, he threw cold water on any kind of capital-gains tax cuts. Capital gains rates "have already been reduced. The president thinks that the first priority is to get the income-tax rates down," Rove told me.
Even White House economic adviser Larry Lindsey, the architect of Bush's tax-cut plan, confided to me recently that he wished "the tax cut was larger in the first year." When I asked him if he believed that the Bush plan as passed by the House would turn the economy around this year, his ominous response was "I have no opinion."
The White House has taken to describing the tax-cut plan as "the economic recovery plan," and its across-the-board income-tax cuts will certainly strengthen the economy over the next six years, with most of the cuts occurring in the final two or three years. But most economists do not think it will do much of anything this year, as layoffs mount, the technology sector implodes, Americans watch their 401(k) and mutual funds shrink, and consumer confidence plummets.
"This piece of the tax cuts doesn't pump a lot of money into the economy immediately. It's not a tax cut that is designed, as it were, to pull our economy out of a recession. It's designed to be a significant benefit to build consumer confidence," Martin Regalia, chief economist at the U.S. Chamber of Commerce, told me.
Regalia thinks the current tax-cut plan will have a long-term "salutary effect on the market psychology we're seeing." But, like Larry Lindsey, he thinks that "it would be better to have this tax cut more front-loaded than back-loaded, which would have more of a jump-start impact on the economy."
That's what Armey thinks, too. This is not a time for "timidity" in tax-cut policy, he told his colleagues. If Republicans do not act more boldly to get this economy back on track sooner, "the public won't forgive them" in next year's elections, he