Economic Growth Vs. Debt Phobia

When Treasury Secretary Paul O’Neill stated Sunday on Meet the Press that postponing the tax cut wouldn’t help the economy, Tim Russert asked: “Will you continue to press for the implementation of the tax cut if it means deficits, or tapping into the Social Security trust fund?”

Secretary O’Neill knew the right answer, but because debt-phobia has possessed many in the Republican Party, he could only whisper it in code: “The nicety of an accountant’s surplus (is) not good economics.”

Similarly, when Iowa’s Democratic Gov. Tom Vilsack refused to endorse repealing the Bush tax cut, ABC’s Sam Donaldson asked: “Which of the two bad choices that you just heard Sen. (Tom) Daschle lay out (“shortchanging critical needs” or “raiding the Social Security surplus”) do you favor?” Because the Democratic Party is not only consumed with debt-phobia, but also class warfare, Vilsack couldn’t even hint at the right answer. Instead, he latched onto a third option: “You can look for greater efficiencies in government.”

The answer to both questions is straightforward: The third option to Sen. Daschle’s two false choices is economic growth, and trying to prevent deficits by raising taxes or postponing the tax cut would only make the recession worse and lower long-run economic growth once the recession is over.

Budget surpluses, debt reduction and tax increases do not promote economic growth (ask Argentina and Japan); they stifle it. Economic growth generates surpluses, reduces the debt burden and allows government to provide the services its citizens need. And the way to economic growth is to cut tax rates on work, saving, investing and entrepreneurial risk-taking.

President Bush has correctly observed that no economic theory, Keynesian or supply-side, recommends the foolish fiscal austerity espoused by Daschle. In fact, both schools of thought sanction temporary deficits if needed to revive a flagging economy. Keynesians believe deficits are a virtue in and of themselves. Supply-siders don’t believe deficits themselves stimulate growth, but that short-run deficits are necessary to implement the tax-rate reductions that will stimulate growth.

Either way, Daschle is promoting economic nonsense that hurts his country and discredits his party.

James R. Taylor is president of Empower America.