MANY members of Congress finally seem willing to recognize something well understood by millions of unemployed workers and bankrupt business owners: The U.S. economy is stagnant, with no strong upturn in sight.
Two million more Americans are out of work today than 18 months ago. Businesses are still shutting down and consumers are still staying away from the stores.
Many lawmakers now understand that a package of tax and budget cuts is needed to lower the barriers to economic activity and growth. The most recent plan is the Economic Growth and Family Tax Act of 1991, introduced by Sen. Robert Kasten, R-Wis., and Rep. Vin Weber, R-Minn. This plan would offer tax credits to families with dependent children to ease their tax burden. It also would reduce penalties on savings and investments by cutting the tax on savings and investments -- what is known as the capital gains tax.
Like an injection of Adrenaline, the Kasten-Weber plan and others like it would put life into the moribund U.S. economy. The tax cuts would allow American families and businesses to keep more, and thus spend and save more, of what they earn. The cuts also would restore the incentive to take business risks in these uncertain times. And such a package would reduce the burden that government places on the beleaguered private sector.
Lawmakers also seem to recognize another economic fact of life: When major tax proposals are under discussion in Congress, legislation should be developed and enacted as soon as possible. Uncertainty over fiscal policy freezes decision-making by businesses, further slowing the economy. Last year's budget summit demonstrated this. The uncertainty created by the drawn-out policy arguments between the Bush administration and factions within Congress understandably prompted business owners and consumers to hold on to their wallets rather than investing or spending. This, of course, helped trigger even deeper and longer recession.
It is also clear that last year's budget agreement has been an economic fiasco. Office of Management and Budget Director Richard Darman promised in October last year that the budget )) deficit would be held to $229.4 billion in fiscal 1992. In fact, it will hit $348.3 billion. Darman claimed too that unemployment would average 6.1 percent this year. In fact, it rose to 6.9 percent in
June and lingers at 6.8 percent. Darman claimed that the economy would grow by 1.3 percent this year. In fact, the economy has shrunk for the first two quarters of this year at an annually adjusted rate of 1.6 percent. While the economy grew again in the third quarter by 2.4 percent, it began falling again in the last half of the quarter.
Much worse, of course, than these raw statistics is the human suffering inflicted on the American people by last year's budget deal. Thanks in part to huge tax and spending increases agreed to at the summit, two million Americans lost their jobs and have little prospect of obtaining work any time soon. Americans out of work for more than 15 weeks rose from 1.36 million in March 1990 to 1.74 million in August of this year.
Last year's tax and budget package was supposed to cut the deficit and ensure economic growth. Instead, it has led to bigger deficits and economic stagnation. A fundamental change in policy is urgently required.
And quickly. Congress cannot continue arguing for months. The Bush administration cannot continue defending an indefensible economic status quo and refuse to make a decision on necessary tax and spending cuts.
If no action is taken, the result will be more economic damage and more unemployed Americans. The uncertainty created by a repeat of the sorry spectacle of last year's six-month budget summit will keep customers out of the stores and investors out of the market.
Now that Congress has raised the hopes of Americans, it cannot -- them through inaction. A genuine package of real tax and spending cuts can, and must, be fashioned quickly.
Edward Hudgins is deputy director of economic policy studies and Robert Moffit is deputy director of domestic policy studies at the Heritage Foundation, a Washington think tank.