Bush Needs A Reform Strategy, Cannot "Run Out The Clock"

President Bush's political advisors are perilously close to recommending a "run out the clock" strategy on domestic policy prior to the 2004 election. They will advise the President to (1) insist on partisan tax cuts, (2) back away from Medicare reform and cut whatever deal is available on seniors' prescription drugs, (3) talk tough but do little to restrain federal spending, (4) use liability reform as a wedge issue to be kept alive (not resolved), (5) forget about Social Security reform, and (6) make excuses about the soaring deficits and the increasingly grim outlook for America's future finances.

This would be a mistake, if not necessarily for Bush's reelection, then certainly for his ability to govern and solve domestic policy problems in a second term.

Instead, the President should do two things:
1. Transfer his sense of confidence and optimism and resolve in foreign affairs to domestic policy.
2. Use the leadership capital he has accumulated to push a bold, bipartisan reform agenda aimed at getting results, not just scoring political points.

First: Economic confidence. Since the beginning of his administration, Bush's economic rhetoric has been gloomy. To ensure the public knows he is concerned about the economy, Bush accentuates bad economic news. He then uses economic worries as a justification for tax cuts.

As a result, this administration has set off a cycle of low economic expectations, tax cuts that don't work, more bad news, more gloom and excuses, more tax cuts, and so on.

In desperation, the Administration has begun to flail. Bush's proposed dividend tax cut seems panicky, an artificial attempt to boost the stock market. His economic team has turned over: the new guys are mostly unknown and lack credibility with the public. Bush's political advisors regard the economists as pushovers. That is why so many of Bush's economic decisions have reflected political concerns (and haven't helped the economy).

Yet the economy needs a surge of confidence and optimism much more than it needs another tax cut. Investors know taxes that go down now will just go up again later, because they can see that federal spending is not going down, and they know future federal deficits will cause economic harm and must be addressed. These rational expectations are why Bush's tax cuts aren't stimulating growth.

Which bring us to the second point: Problem-solving. Rather than talking down the economy and then offering a tax cut for every economic worry or political need, Bush should take the more difficult, but ultimately more rewarding road: reform. Medicare must be reformed, why duck the issue? Health costs and the number of uninsured will soon return to crisis levels, why wait? Personal income taxes should be simplified. As a start, we should fix the Alternative Minimum Tax (AMT), consolidate tax preferences for education and children, and dramatically simplify taxes for small investors. Simplifying corporate taxation wouldn't be enough. The corporate income tax system has grown so inefficient that it should be overhauled completely. Social Security reform remains the right thing to do, even if the worst consequences of non-action are two decades away. New security needs demand a re-evaluation of the federal-state relationship. The liability system must be rationalized -- the continued political back-and-forth isn't leading toward the predictability and equal justice we need. We cannot burden the next generation's economy with the cost of both the baby boomers' retirement and huge national debts.

Most importantly, emphasizing reforms and solving problems, rather than retreating to entrenched partisan positions, is probably the best, most durable way to improve economic confidence and optimism. Bush should reject the partisan "run out the clock" political strategy. Instead, he should ease our economic worries by working with both parties to enact needed reforms.

Posted by Jeff Lemieux at May 4, 2003 02:20 PM