Investor politics

January 13, 2003

POLITICIANS RARELY like to admit to playing politics. When quizzed about the political calculations behind a particular proposal, they'll often hem and haw, then offer a hoary, old maxim: Good policy makes for the best politics.

President Bush is no more forthcoming than the rest, but he's certainly following a different maxim. His philosophy seems to be: Good politics is the best policy - at least for him.

His latest proposal, a so-called economic stimulus plan, seems to have been crafted entirely on the basis of political considerations. Almost none of it is stimulus, and much of it is based on dubious policy grounds. Call it ballot-box economics.

The president appears to have bought a line advanced by some Republican strategists that he can improve his prospects for re-election in 2004 by endearing himself to a new category of voter dubbed the "investor class."

GOP strategists include in this group everyone who has a stake in the financial markets. Holders of stocks, bonds and mutual funds all qualify, especially the increasing percentage of Americans whose retirement savings are invested in 401(k)s and IRAs.

Republican pollsters say the investor class includes half of all Americans, and 70 percent of voters.

Thus, half of Mr. Bush's stimulus package, at a cost estimated at $300 billion over 10 years, is intended to please investors by eliminating the tax on corporate dividends.

Not many investors will directly benefit, partly because their holdings are too small or because the holdings are confined to retirement plans, which are already tax-free until the money is withdrawn.

But the theory is that making stock purchases more attractive will bid up prices and help the market recover from its two-year swoon, swelling all portfolios.

None of this is expected even by the White House to happen overnight. But if Congress can be persuaded to enact a proposal that will set the process in motion, Mr. Bush's advisers figure he can rebuild confidence in his leadership among those whose nest eggs have shrunk drastically on his watch.

The proposition is decidedly high-risk. Reducing or eliminating taxes on dividends received by individuals could have unintended negative consequences on retirement plans and tax-free municipal bonds, used to finance government projects.

Worse, Mr. Bush, who already won a $1.35 trillion tax cut that hasn't yet taken effect, is proposing to add still further to the mounting federal deficit. This comes as he is contemplating a costly war with Iraq and when the nation hasn't yet fortified homeland defenses or taken steps to shore up financing for Medicare and Social Security.

Perhaps the size and scope of the president's plan were intended largely for dramatic effect. Congress should play its part by paring back the tax cuts, and directing relief to the cash-strapped states.

That would be better policy and good politics, for everybody.

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