Bush's Way Is Clear to Press His Agenda for the Economy
By RICHARD W. STEVENSON
It is sure to include making permanent the 10-year tax cut
passed last year, securing new tax cuts for investors, holding down spending in
areas other than national security and moving slowly toward overhauling the tax
code and Social Security.
The president is eager to take advantage of the Republican
majority on Capitol Hill, his aides say, adding that he has long since absorbed
the lesson of 1992, when Bill Clinton beat his father partly by casting him as
out of touch on the economy. But after two years in office, Mr. Bush faces
added pressure to get good economic results or pay a steep price 
when
it comes to his own re-election, political strategists and economic
policymakers in both parties say.
Mr. Bush used the economic downturn that began around the
time he took office to build support for the $1.35 trillion tax cut he signed
into law 17 months ago. In that way the economy's current weakness could be an
opportunity for the White House to assert that expanded tax-cutting would again
give the economy the lift it needs. He and Republicans in Congress have also
made clear that they intend to do more to shield companies and doctors from
lawsuits, continue to loosen environmental regulations and promote more
international trade.
For two crucial reasons, Mr. Bush will hold the economy's
reins as never before. First, even though the Democrats are sure to put up a
fight, in Congress and in the presidential campaign, they are in disarray on
economic policy — and deeply split over tax cuts in particular.
Second, Alan Greenspan, the Federal Reserve chairman, was seen in recent years
as having far more power to smooth out economic bumps than the president. But
the Fed has just about exhausted its power. It has pushed its main interest
rate down to 1.25 percent through 12 rate cuts over the last two years, leaving
it with little room to reduce rates further.
With the Fed all but sidelined, the focus is shifting to tax
and spending policy. But relying on further tax cuts — with an increase in government
spending on national security and a possible war with Iraq — also runs the risk
that the current modest budget deficits will swell into an economic and
political issue, as they did in the 1980's and early 1990's.
This is also the first sustained period of economic weakness
since mutual funds and 401(k) retirement plans made investing part of everyday
life across the income spectrum, and some White House officials are concerned
that there is no playbook for responding to anxiety among the mass investor
class.
Mr. Bush confronts other risks. After nearly two years of
attributing the economy's troubles variously to a hangover from the
"There's no more calling this the
A Team in Tumult
In late 2000, even before the disputed election was settled,
Mr. Bush set in motion a strategy of acknowledging the economic problems he
would face as president.
His running mate, Dick Cheney, started publicly
characterizing the economy — correctly, it turned out — as on the brink of
recession. Mr. Cheney began making a case that Mr. Bush's proposed tax cut,
which until then had been justified primarily as a way to give the budget
surplus back to taxpayers, would ward off an economic downturn that he tied to
the Clinton administration.
Mr. Bush and his team have used economic difficulties to
press for their policies on taxes, trade, energy and other issues ever since.
Having absorbed the lesson of 1992 — that it is fatal to appear out of touch
with the economic angst of voters — Mr. Bush has continued to address the
economy's problems openly even when things seemed to be improving.
Throughout this year, Mr. Bush said he would not be
satisfied with the economy until every American who wanted a job could get one.
He sought to tie his popularity as commander in chief directly to his economic
plans by asserting that his agenda was directed at providing security of all
sorts for the nation.
But if Mr. Bush has been consistent in his message of
concern and hope, his top economic advisers have been prone to gaffes and
feuds, leaving the administration without an economic spokesman of any stature,
members of each party said.
"There clearly seems to be a high level of frustration
with the president's economic advisers in general," said Bruce Bartlett, a
senior fellow at the
Prominent Republicans said the most consistent target of criticism,
Treasury Secretary Paul H. O'Neill, is unlikely to leave anytime soon. Mitchell
E. Daniels Jr., the budget director, has had stormy relations with both parties
on Capitol Hill, but he is well regarded within the White House, and if he
leaves it is likely to be to run for governor of
Lawrence B. Lindsey, chairman of the National Economic
Council, has drawn criticism as being disorganized, and he has been shorn of
any substantial role as a spokesman on economic matters. But he has denied
rumors that he is on his way out.
People with ties to the administration, especially
conservatives, have been promoting a bigger role for R. Glenn Hubbard, the
chairman of the Council of Economic Advisers. But his prospects for getting
more responsibility are uncertain.
Asked on Thursday about the future of his economic advisers,
Mr. Bush lauded their performance in guiding the economy through two turbulent
years but had no assurances there would not be changes.
No `Rubinomics' for Them
Behind the emerging Bush economic strategy is a shift away
from the bipartisan consensus of the late 1990's that fiscal responsibility
should come first when setting budget policy. Instead the administration is
reasserting conservative economic orthodoxy and giving itself more room for tax
cuts.
Conservatives have always been skeptical that balancing the
budget was a more potent strategy than cutting taxes. But they went along with
the fiscal rectitude formula, championed by Robert E. Rubin while he was
economic policy coordinator and then Treasury secretary in the
Now Mr. Bush's advisers are openly deriding what they call
"Rubinomics." Gone is any talk of paying
off the national debt or leaving untouched the temporary surplus being
generated by Social Security, both staples of the
White House officials say there is nothing to support the
primary economic benefit claimed by proponents of fiscal responsibility, that
cutting deficits or running surpluses puts downward pressure on interest rates.
"As an economist, I don't buy that there's a link
between swings in the budget deficit of the size we see in the
Indeed, Democrats are having a difficult time invoking the
interest-rate argument because rates have declined sharply even as the budget
has moved from surplus to deficit in the last two years.
Mr. Hubbard said deficits in the range of $100 billion to
$200 billion a year were not economically harmful, especially if there was a
commitment to hold spending in check and eventually bring the deficits down.
The deficit for the year that ended Sept. 30 was $159 billion. Private analysts
said the deficit could well be $200 billion or more for the next several years
at least.
The White House formulation — that economic growth leads to
an improved budget situation, not the other way around — reminds many analysts
of the assertions of the so-called supply-siders in the 1980's, when
Republicans promised that tax cuts would pay for themselves.
Stanley Collender, managing
director of the federal budget consulting group at Fleishman-Hillard, the public relations firm, summed up the
administration's fiscal philosophy this way, "Cut taxes because we have a
surplus, and cut taxes because we have a deficit."
Democrats agree that running moderate deficits during a
downturn is appropriate. But they say the administration is leading the nation
down a path of more or less permanent deficits.
Representative John M. Spratt Jr. of
So far, voters do not seem to care. When he asked voters
this week to pick among 12 reasons to support Democrats, Stanley Greenberg, a
Democratic pollster, found that dealing with the budget deficit came in dead
last.
How Bad Is It?
In developing his agenda, Mr. Bush has to start by
determining how weak the economy is.
Through much of the fall, the administration said it
expected the economy to begin bouncing back by the end of this year or early
next. But aside from the stock market, which has rallied over the last month,
most economic indicators have turned down in recent weeks, leading to renewed
concern in the White House.
Most of the ideas the administration has been considering
would affect the economy primarily in the long run. Making last year's 10-year
tax cut permanent would have little short-term impact, although Republicans on
Capitol Hill are considering calling for phased-in personal income tax rate
reductions scheduled for 2004 and 2006 to take effect immediately.
The White House has also been weighing steps to help
investors, including reducing the taxation of dividends and increasing, to
$8,000 from $3,000, the amount of capital losses that can be deducted on
individual income tax returns.
For the long run, the policy debate is likely to be
dominated by proposals being developed by the administration to add private
investment accounts to Social Security and rewrite the tax code.
But the White House seems unlikely to move rapidly on either
issue. Social Security, several Republicans with ties to the administration
said, is too politically divisive right now for the president to make it a
priority, especially if the stock market remains volatile. Bush officials said
it would take a long time to build political support for big changes to the tax
code, though they left open the possibility of putting some ideas on the table
to begin the debate.
The Twiddling Opposition
Mr. Bush's success in pushing his tax cut through Congress
last year with bipartisan support has left Democrats deeply divided on economic
policy.
Mr. Bush will most likely be able to continue exploiting the
internal problems among Democrats just as he did in the campaign. Many moderate
Democrats in the Senate who are up for re-election in 2004, like John B. Breaux
of
For now, Democrats seem likely to spend as much time
debating one another as taking on Mr. Bush. In reviewing the election results
this week, the centrist Democratic Leadership Council warned against simply
"moving to the left" and fighting the president at every turn.
Liberals drew the opposite lesson. Democrats, said Robert L.
Borosage, co-director of Campaign for