Jimmy Bush?

December 19, 1991

One of the worst ideas to come along for dealing with this recession is the drumbeat for a $300 tax rebate for most taxpayers. This is an inflated version of Jimmy Carter's ill-fated call for a $50 rebate soon after his inauguration, a bit of foolery he had to withdraw so abruptly he permanently damaged his reputation for consistency.

In the run-up to next year's election, the quick-fix approach has gained currency among four of the six Democratic candidates for president -- this despite overwhelming evidence that it would boost the deficit close to 10 percent and spook the financial markets without giving the economy the long-term sustaining power it needs.

What is dismaying is the support this Carteresque idea is getting among various factions in the panicky Bush White House. The president, it seems, is so worried about his free fall in the opinion polls that he even is willing to break open the 1990 deficit-fighting budget agreement he has long defended. If readers want a devastating if nuanced critique of this notion, they should carefully peruse the testimony of Federal Reserve chairman Alan Greenspan on the page opposite.

Granted, Mr. Greenspan's track record on this recession is not much better than President Bush's. Though the Fed chairman's tough monetary policies have been successful in holding inflation to a very low 2.1 percent and correcting the fiscal profligacy of politicians, long-term interest rates have remained so high they have increased the cost of servicing the nation's astounding overall $11 trillion private and public debt.

The Fed, in our view, should make its next cut in interest rates a rouser -- one that will produce real savings on interest costs for the Treasury and encourage industry to increase its anemic investment plans. Such a move would probably be a more effective stimulus than rebating less than a dollar a day to the average American family; more important, it might restore some confidence in the future to a public rightly worried about job prospects, declining living standards and a deterioration in the nation's competitive position.

George Bush, to avoid becoming "Jimmy" Bush, should resist the tax rebate gimmick and other tax-cut proposals that would increase current and future deficits. Instead he should stick to investment incentives which encourage fairness in the tax code, as a capital gains cut would not, and keep up the pressure on the Fed to lower interest rates. Ordinarily, we favor monetary restraint. But these are extraordinary times in which the Fed can cash in on the low inflation rate it has achieved.

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