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Press Release

Gephardt’s Ploy to Grow Government, Not the Economy


The Democrats are finally trying to present an agenda to improve America’s economic growth. It’s about time. While we welcome the debate, the early signs are that, when it comes to the economy, the Democratic leadership—- some of the biggest tax-and-spenders in Congress—- still doesn’t get it.

Dick Gephardt offered his ideas yesterday in a major speech,
“A Plan for Economic Growth.”

While calling for bi-partisan cooperation, Gephardt introduced his plan with a vicious attack on Republicans, saying they have only offered “…an extremist ideology of trickle-down economics and ineffective gimmicks." Gephardt even called "this [Bush] administration's record … as bad as any president in the last 70 years," referring back to Great Depression of the 1930s.

Yet Dick Gephardt did not call for the repeal of the apparently “extremist” Bush tax cuts— the centerpiece of the Bush agenda and probably the most effective thing Congress has done for the economy in the past two years. Of course, Gephardt is trying to have it both ways. He won’t argue for repeal of the tax cuts, yet he won’t support efforts to make them permanent. Still, the one bright spot in Gephardt’s new $200 billion plan is that he dedicated $75 billion of it to tax relief.

Here’s our take on Gephardt’s agenda, point-by-point.

Point One: Billions and Billions in New Spending Grade: Big Fat F

First and foremost, the Gephardt plan is a call for more spending. The “stimulus” plan includes $25 billion in spending for school construction, $25 billion to help localities “protect key facilities from terrorism,” and $75 billion for health care, mostly increasing the federal contribution to Medicaid.

Gephardt chooses to break the budget on the most popular new categories of concern—education, health care, and anti-terrorism security. It’s good politics, but bad policy. School construction is a state and local matter, and we’ve already passed massive new supplemental spending bills for the war on terror. As for health care, the Medicaid program is in crisis and needs dramatic, pro-market reforms, not more cash. All of this new spending today means more taxes for everyone tomorrow.

Point Two: Raise the Minimum Wage Grade: D-

The Gephardt plan would raise the minimum wage by $1.50, to $6.65 an hour, by 2004. Really, the only good thing about this policy proposal is that Gephardt doesn’t try to raise the wage rate even higher and faster. Say, why don’t we simply mandate $25 an hour for all Americans? We don’t because government wage and price controls have serious, negative side effects. The most important of which is that the minimum wage kills off entry-level jobs, making it tougher for low-income workers to gain the experience and skills needed to earn more than the minimum wage.

Point Three: New Restrictions on Corporate Executives Grade: Let’s Wait

Gephardt wants a few new restrictions on the activities of business CEOs. Gephardt is trying to capitalize on the continuing fallout from the corrupt implosion of Enron, Worldcom, and others. This year, though, Congress passed sweeping, tough, new corporate accountability legislation, and a number of these New Economy robber barons are under criminal investigation and are going to prison. Even Tom Daschle agrees that it’s hard to see what else needs to be done in this area—we should let the new accountability law take full effect before making further changes in our corporate governance laws.

Point Four: Make Pensions and Retirement Plans Portable Grade: Nervous D

In theory, permitting workers “to take their pension with them when they move from one job to another” sounds like a good idea. After all, today’s workers frequently change jobs, and even careers. Our retirement systems should be designed to support this kind of flexibility in our labor markets. However, what Gephardt really covets is “to go much further and create a single, universal pension system.” That’s a frightening socialist vision with disastrous employer mandates and a government takeover of American pension resources.

We’d like to see the implementation of more market- and individual- oriented pension systems, but not a massive, new government retirement program or sweeping new regulations and mandates on employers. It’s hard to trust Dick Gephardt on this one.

Point Five: Extend Unemployment Insurance Grade: C

Everyone feels badly for folks who are laid off. However, ideally unemployment insurance is insurance—workers pay in and receive benefits if they lose a job through no fault of their own. States are in charge of unemployment programs. Congress needs to be careful. By adding new funding to state unemployment programs, Washington might reward states that have bad regulatory policies that keep more of their residents off the job.

Point Six: Temporary Tax Relief for Families and Small Business Grade: C+, extra credit possible if cuts are permanent

OK, we’re very happy that Gephardt is finally acknowledging the important role that taxes, and tax cuts, can play in sparking economic growth. He proposed $75 billion in tax rebates “to help working families and encourage company investment in the near term." But, what about the long-term?!? If tax cuts are good policy—and cuts in marginal tax rates most certainly are—why not propose permanent tax cuts?

While most tax cuts are good, the real benefit comes form making them permanent so that incentives are changed and people are encouraged to work harder because they get to keep more of what they earn. A one-time, after-the-fact tax rebate is good, but it doesn’t change incentives. If a tax rebate is a good idea this year, it is also a good idea next year. Congress can start by making the Bush tax cuts permanent.

What Next?

Ironically, many of the ideas in Gephardt’s plan have already passed the House of Representatives without his support, and are now stuck in the Senate. For example, if Dick Gephardt is really interested in tax cuts, he should vote to support some of the $65 billion in tax cut measures the House is voting on today. This package includes positive measures, like letting Americans contribute more to their 401(k) savings plans. It’s too bad Mr. Gephardt has already slammed these tax cuts as “more nonsense” and “more illusion.”

Nonsense and illusion? Considered in total, the Gephardt plan is just that. Gephardt doesn’t say where all of this new spending will come from. He says it would come, in part, from unspecified spending cuts. Which programs? Instead of details, Gephardt oddly refers to an old 1998 Time Magazine article on corporate welfare. That’s because he lacks the political will to actually cut any government spending. Instead, Gephardt punts to a vague federal budget commission that is supposed to make the tough choices sometime in the future. Too bad that’s the job we elected Minority Leader Gephardt and the rest of Congress to do. It is leadership, the ability to make the tough choices, that is required to free the economy. Instead, Gephardt is playing politics with the economic slowdown and offering a bunch of half-baked solutions. Enough talk—let’s start cutting taxes to get the economy moving again.

Senators Daschle, Kerry, Lieberman and Edwards also plan talks on the economy in the coming days. Let’s hope they follow a different playbook.