Bush must pay national debt

January 11, 2001|By Tom Teepen

ATLANTA -- The Federal Reserve and its chairman, Alan Greenspan, are giving the economy a shot in the arm and the incoming Bush administration a shot across the bow.

By lowering the prime rate dramatically and sharply -- and that just for openers -- the Fed was responding to data showing that the house-afire economy of the '90s is burning itself out in the '00s. No, a recession doesn't necessarily loom. The economy is still growing, but the deceleration has an "oops" feel about it, like an elevator that goes down faster than you'd like.

The soft landing that the Fed was trying to engineer threatens instead to be bumpy. The numbers called for correction of the sort Mr. Greenspan has undertaken.

But the chairman has been reading more than numbers. He has been reading the news, too, and couldn't miss the near glee with which President-elect Bush greeted the softening, citing it as validating the whopping $1.3 billion tax cut he wants and that, until now, made no sense whatsoever. (He proposed it when it would have revved the still-hyper economy into inflation.)

Mr. Greenspan is making it clear that he is no fan of outsized tax cuts even now. Instead, the economy, he is suggesting, can be fine-tuned both faster and more accurately by incremental rate cuts. All the more so because Mr. Bush's big tax cut is back-loaded and wouldn't have its greatest impact for five years, when the economy might be up, down or inside out, for all anyone knows.

Republicans won the White House (sort of) and Congress and so there's probably no gainsaying them some tax cutting. In particular, they've got to do something swell for the rich, or turn in their convention badges. The inheritance tax probably can't be saved from repeal. Hey, there are millions of work-a-day taxpayers available to make up the difference.

And expect congressional majorities, too, for fixing the so-called "marriage penalty." About as many couples get a bonus as pay a penalty -- the proper result of a progressive system -- but the party's family-values wing is convinced that with the penalty gone, sinful couples will rush the altar and premarital sex will just about end.

As Mr. Greenspan has suggested, it would be far better to use the current federal budget surplus to pay down the federal debt than to make tax-cutting whoopee.

The '90s boom was crucially sponsored by the combination of Clinton administration tax increases and congressional spending restraint that together stabilized the federal ledgers and created a credible atmosphere for private sector investment. The resulting economic growth was solid because it was driven by productivity increases, not by bubble machines.

The kind of tinkering Mr. Greenspan and the Fed are up to promises to sustain growth and to do so durably. If, instead of giving away the store, Mr. Bush and Congress hold themselves to modest tax cuts and significantly lower the federal debt, the reduced competition for money will encourage the kind of private investment that pays off in better productivity and healthy rather than hyped economic growth.

Tom Teepen is a columnist for Cox Newspapers. He can be reached via e-mail at teepencolumn@coxnews.com.

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