Supply-siders return under Bush

Journal Record, The (Oklahoma City), Apr 11, 2001 by David Leonhardt N.Y. Times News Service

WASHINGTON -- Stephen J. Entin has just about every credential that a true supply-side economist could want. He holds a graduate degree from the University of Chicago. He worked in the Reagan administration's Treasury Department. He runs a Washington research center, whose Web site contains photographs of him with Jack Kemp and Steve Forbes, the two political figures who have probably done the most to keep the tax-cutting flame alive.

During the 1990s, Entin said, he never set foot inside the White House or the Old Executive Office Building, where much of the work of the president's staff gets done. In the first two months of the Bush administration, he has visited three times.

On the face of things, supply-side economists -- a fairly small group who argue that lower tax rates are the key incentive to promoting economic growth -- appear to have returned to their influential role of the early 1980s. After a decade of relative anonymity, working for trade groups or researching issues that had little chance to become policy, they again have a seat at the table of power as a new president has made a big tax cut the central focus of his first year.

But ask them what they think of the White House proposal, and their responses are surprisingly tepid. "It could have been a lot worse," Entin said. President Bush and his advisers, added Kevin Hassett, a resident scholar at the American Enterprise Institute here, "have yet to demonstrate that they buy into fundamental tax reform."

Hassett added, "The sun is shining again. It's certainly not heaven, but it's nice to see."

This contradiction highlights the unusual role that supply-siders are playing in the current political debate. Even as they attend top- level meetings -- and even though they express confidence that the White House will attempt to do much of what they want before Bush's first term ends -- they find themselves frustrated on two main issues.

Unlike two decades ago, when Reagan cited the work of Arthur Laffer to argue that tax cuts could actually increase government revenues, the supply-siders' position does not make up the core of the administration's publicly stated rationale for a tax cut. Instead, Bush has more often described his plan as a stimulus, using the language of the supply-siders' longtime intellectual rivals, Keynesians, who believe the government can best jump-start a slowing economy by spending more money, either through broad tax relief or new programs.

In addition, the president's proposal, even before the Senate moved to try to scale it back, did not include some of the supply- siders' other favorite ideas, like cutting the tax on capital gains or reducing some corporate taxes.

Lawrence B. Lindsey, Bush's top economic adviser and once a bona fide supply-sider himself, has told conservative groups that such moves are not a high priority right now.

Still, most supply-side economists say they remain confident that their differences with the White House relate more to political strategy than to economic philosophy. With the economy in a slump, a senior White House adviser said, the administration simply believes the Keynesian rationale for a tax cut has the best chance of winning public support. If Bush can overcome the opposition of Democratic leaders in Congress, supply-siders expect he will turn to other items on their wish list in the second half of his term.

"The president understands tax reduction in the way Reagan did," said Lawrence A. Hunter, the chief economist at Empower America, a lobbying group run by Kemp, the former representative who was a driving force behind the last large tax cut, passed in 1981. "That said, the president is a good politician."

The White House has given the economists good reason for their confidence. Lindsey, in his standard speech these days, says, "Let's face it. The federal tax code is a mess, and it is going to need substantive reform.

"But we picked a number of particular reforms that we think need doing right away."

Such comments also fuel the criticism of more liberal economists who say that Bush's tax cuts are largely a boon to wealthy Americans, rather than the economy as a whole, and that the government cannot afford the plan he submitted to Congress this year. The White House says its plan would cost $1.6 trillion between 2002 and 2011. Opponents say the actual figure would exceed $2 trillion because of higher borrowing costs, a recently revised estimate of the revenue loss from eliminating the estate tax and various plans to make the cut effective in 2001.

The House has passed an early version of Bush's plan, but the Senate voted last week to limit the tax cut to about $1.2 trillion.