As Chairman Bill Thomas of House Ways & Means indicated this morning on a CNBC interview, his committee will mark up his tax package today and will pass it through the House on Friday. The administration is remaining neutral on his proposal, but would be thrilled to pieces if something like it could get to the President`s desk. Thomas pooh-poohed the idea that came out of Senate Finance that Chairman Chuck Grassley will try to squeeze the President`s proposal into $350 billion by ending the double-tax on dividends by "sunsetting" the proposal in the year 2006. Ohio Sen. George Voinovich has apparently said he doesn`t care how it is done, but he will vote for $350 billion in tax cuts. Maine Sen. Olympia Snowe now becomes the Senator on the margin, as she says she will not support such a "gimmick." Which it is, of course, given the dopey rules the Congress imposed on itself some years back. On the other hand, Thomas himself employs just such "gimmicks" in his package, sunsetting the so-called "kiddie credits." What this means is that the administration will need one vote in the Senate to pass something like the Thomas package, as the best Grassley could do to get Olympia`s vote would be a 20% exclusion on the dividend tax.
Wall Street seems to know what is going on as it rallies again today, reckoning the politics are working in favor of a decent bill coming out of a Senate-House conference, perhaps even before Memorial Day -- although July 4 is more likely. The administration would like a bill asap, while the Iraq/Middle East situation still looks rosy. The optimistic scenario at Treasury is that when the bill is brought to the Senate floor next week that intense negotiations will bring a positive breakthrough, even with the possibility of a breakthrough on the Democratic side. I hear there are discussions underway with a few likely suspects, but what it will take is a sense that the President will win in the end and the legislation will wind up being popular. The better possibility is that when the House-Senate conference convenes, it will shape the final legislation in ways that will prove too attractive for Democrats to oppose unanimously.
The President`s rhetoric, alas, remains rooted in the demand model, putting money into people`s pockets, as we see in the following speech on "Jobs and Growth" yesterday in Little Rock:
"We have one of the strongest economies in the industrialized world. Things aren`t going as good as they can, but nevertheless, we`re making progress. We've got some positives on which we can build. But one of the problems of being a productive economy is that a worker can -- one worker puts out -- there`s better output per worker, let me put it to you that way. And therefore, in order for the job market to increase, you need to increase demand for goods and services. If one worker can produce more goods or more services than before, you need more goods and services to be able to hire the additional worker. In other words, we've got to have policy which stimulates demand. And the best way to stimulate demand is to let people keep more of their own money. (Applause.)
"Notice I said, "keep more of their own money." The money we`re talking about in Washington is not the government's money. (Applause.) It`s your money. The best way to get this economy growing is to let you have more of your own money so you can spend on a good or a service. And when you do, it`s going to make it more likely somebody is going to find work."
To be fair, the President did get around to making some good points. But as long as he makes any "stimulus" argument that flows from people being able to increase their "demand" for goods and services, he plays into the hands of the Democrats and moderate Republicans. If you want to stimulate demand, put the money into the hands of people who will spend it, not save it. If you want economic growth, lift the impediments that are strangling it. There is still nobody in the administration who is making the argument that it is not possible to confront the deficits facing all levels of government unless the tax rates that are smothering capital formation are lifted, so an economy that would love to expand can do so. I`m told Treasury Secretary John Snow has said as much in congressional testimony, but those aspects of his remarks have been buried. There will be plenty of opportunities for this idea to help shape the debate going forward, however.
The current (May 10th) issue of Fortune magazine tells us "Here We Go Again," with supply-siders back in the saddle. The piece is laced with errors of fact and misinterpretation, but its general drift is correct, and it spells my name correctly. (One client called to remark on how handsome I was 30 years ago!)