President Bush needs an exit strategy for his economic plan. On Monday, economists led by 10 Nobel laureates assailed his proposed tax cuts. On Tuesday, Federal Reserve Chairman Alan Greenspan ambushed the administration by reminding Congress of facts that it doesn't take a doctorate to know. Bush needs to admit that he's whipped on this one and regroup.
As the plan stands, the administration is pushing for a variety of tax cuts and shelters. For starters, it wants to make the 2001 tax cut permanent. Then it would eliminate the tax on individual dividend income -- the key part of the 10-year, $695-billion cut. Finally, the administration wants to create lifetime savings accounts and retirement savings accounts, which would basically remove investment income from taxation. The result would be trillions in deficits.
Greenspan suggested that the apparently impending war with Iraq, not a lack of fiscal stimulus, is what's holding up the economy. As long as the administration hasn't reached a decision on war and the costs remain unclear, businesses are going to be reluctant to invest, no matter how many goodies Bush tries to hand out. What's more, the tax cuts themselves are likely to hurt, not help, the economy over the long run. Greenspan warned that long-term interest rates would go up if the budget deficit soared into the stratosphere and Washington needed to soak up money to finance trillions in debt.
