Experts Discuss President Bush’s Fiscal Vision
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JIM LEHRER: The president’s second term economic vision. Gwen Ifill has our look.
GWEN IFILL: During the campaign, President Bush and Vice President Cheney coined a new phrase to describe the economic promise of a second term. They said they would create an “ownership society,” one that would lower taxes and shift more of government’s burden to individuals.
PRESIDENT GEORGE W. BUSH: I believe our country can and must become an ownership society. When you own something, you care about it. When you own something, you have a vital stake in the future of your country.
GWEN IFILL: Although no details were provided, the plan emphasized four main principles: Streamlining the tax code –
VICE PRESIDENT CHENEY: To help families and small businesses we’ll lead a bipartisan effort to reform and simplify the federal tax code.
GWEN IFILL: Reforming the legal system,
PRESIDENT GEORGE W. BUSH: You’ve seen the costs of frivolous lawsuits. Ask your small business neighbor what it’s like to try to provide health care when the costs are going up because of these frivolous lawsuits.
GWEN IFILL: Allowing individuals to invest part of their Social Security savings in private accounts,
PRESIDENT GEORGE W. BUSH: We must allow younger workers to save some of their own payroll taxes in a personal savings account that earns better interest, a personal savings account they call their own and an account the government cannot take away.
GWEN IFILL: And creating savings accounts to widen access to health care.
PRESIDENT GEORGE W. BUSH: These are accounts that allow somebody to buy a low-premium, high-deductible catastrophic plan and couple it with tax-free savings. This is the way to make sure people are actually involved with the decision-making process on health care.
GWEN IFILL: At today’s meeting in Washington, handpicked economists, business leaders and policy makers gathered to endorse those White House policy prescriptions. Vice President Cheney opened the forum.
VICE PRESIDENT CHENEY: For four years now, President Bush has pursued an agenda that put a recession behind us and kept the economy strong.
GWEN IFILL: One panel focused on how lower taxes can jumpstart the economy.
PAMELA OLSON: I would add one more thing to that and that is the need for a stable system. A broader base, lower rates and a more neutral system would meet the president’s goals which I think are the goals of all of us for a simpler and fairer system that would do a better job of promoting economic growth.
GWEN IFILL: This afternoon, President Bush chose to take part in the session on the issue of legal liability reform, one of the staples of his reelection campaign.
PRESIDENT GEORGE W. BUSH: One of the things that I talked about was making sure that the environment for risking capital was conducive for job creation. And I tried to say that as plainly as I could. And one, one issue that I talked about to make sure that — that costs were reasonable, and that the cost of capital was reasonable, was legal reform.
GWEN IFILL: The meeting continues tomorrow with discussion of another controversial proposal: Social Security reform.
GWEN IFILL: Now, for some analysis of the president’s rosy vision for the nation’s economic future. William Spriggs is an economist and senior fellow at the Economic Policy Institute here in Washington. And Brian Wesbury is the chief economist at Griffin, Kubik, Stephens and Thompson, an investment bank in Chicago. He was a member of the opening panel at today’s conference.
GWEN IFILL: William Spriggs, let’s start with you about the definition of an ownership society. Watching this campaign, and watching what the president has had to say about this, what is your interpretation of that?
WILLIAM SPRIGGS: Well, I think there are some things that we would like to see people have greater ownership of. We certainly want to see home ownership increase in this country. But there are a lot of things that the government does today, which are in place because the market is not a good allocator of resources or because what the government is really doing is serving as an insurer; and in that role the government does best when we include everyone, and that’s best done as a government program.
So the president talked about health insurance as an example. And we see from our current system of health insurance that that doesn’t work when you make it an ownership society, because if I want to sell you health insurance, then I want to have the low risk population. I’d love to sell health insurance to a work force that’s 20 something and very healthy. I don’t want to sell insurance to people who are low income, more likely to be ill, and we see that there are gaps in who has health insurance because of that.
So as a nation, we pay a lot for health care and in health insurance, but we get a small amount of coverage and we don’t have the life expectancy in this country that other countries have who have a different way of thinking about health insurance. So that’s an easy example to see where, on your own, you might not get the outcome that you can get if, as an insurance question, you broaden the pool.
GWEN IFILL: Brian Wesbury, what is your definition of ownership society and whether that’s a good or a bad thing?
BRIAN WESBURY: Well, I think the ownership society is a very good thing. We have to remember that the more people have a skin in the game, have a stake in society, have assets built up over time, the less difficulty society will have withstanding bad times. And there are lots of different ways that we can do this. The American Dream Down Payment Assistance Act was signed into law of December 2003, and my belief, my take on this act… and just to describe it, it allows people that earn less than 80 percent of the median income in a region, in a city or a locality, to get a government-sponsored down payment, 10 percent of the value of the house — or $10,000 or 6 percent of the value of the house to help them purchase their first home.
And I believe what this does is it allows the government’s spending to be put toward a use that will build assets and build ownership and build personal responsibility over time, rather than having that money being used to say subsidize a rent with no ownership and really no end in sight in many cases. And as a result, when people own assets, they have access to the credit markets. They’re more likely to be entrepreneurs. All of this, I think, is a very good thing in the long run.
GWEN IFILL: Let me anticipate something that Mr. Spriggs might say to you, which is that this is the government sloughing off its responsibility on to individuals.
BRIAN WESBURY: Well, the individuals should have the responsibility in the first place. And I think that’s point. That government should be there to catch those who fall and can’t get up on their own.
And what we’ve seen is that government, at least in my opinion, over the years, has grown into an enabler that, in fact, includes more people than it really needs to. It tries to help more people than it truly need help. And for example, Social Security or some of the systems we have put in place and Social Security in particular, in my view, because Social Security exists, I think two things happen: Number one: People probably save less during their working lives because they know Social Security will be there in the future. At the same time, those people who do invest also probably are more willing to take risks. In other words, swing from the fences with their investments because they say hey, Social Security will be there.
GWEN IFILL: Let me allow Mr. Spriggs to respond to this of this because it was Bill Clinton who said that the era of big government is over and certainly that seems to be the underlying theme we are hearing today. What is wrong with that?
WILLIAM SPRIGGS: Well, I think Social Security is a key example. And again the example of what happens in an insurance system like health insurance where we see that’s just falling apart; it doesn’t work. In the case of Social Security, we know that if you let individuals assess the risk of the economy and then start saving, when they think things are going to go bad, we get the behavior we don’t want. We get reinforcing and exacerbating business cycles so people will think that the economy is more risky when it starts to turn down. They’ll save more and we learned from the Great Depression, that’s not a good thing.
So we socialize these risks. And in the case of Social Security, what we’re doing is we are insuring everybody from the three things which will happen to you as a worker. You may, God forbid, become disabled and can’t continue to support your family. You may die young and your family again needs some support or God willing, you’ll live a long life and you’ll need to retire because you are not competitive in the labor market. And so by having it universal, you have a risk pool which ensures that the program will hold together to ensure against those risks. When people talk about the retirement program, that’s not what Social Security is. It really is an insurance against these downturns.
GWEN IFILL: I understand that but I also want to talk about some other things that the president touched on in his overview, and I guess I’ll go to you first, Mr. Wesbury, which is the issue of tax reform and tax simplification. How does that become ownership?
BRIAN WESBURY: Well, I don’t necessarily believe that the president tried to say tax reform was ownership, although what we have in this society is a tax system which punishes savings relative to consumption. And the way that it does that is that it double taxes dividends, it double taxes capital gains and as a result, many people — typically Mr. Spriggs would be complaining that we are saving too little. I believe part of that is due to our tax system. I think another part of that is due to the fact that the government has put into place this Social Security system and many people believe it will be enough to support them in the future.
And then one last point about that and it is that these systems are in trouble; the Social Security system is under funded by $10 trillion. Taxes have to go up to pay for it or benefits have to be cut to make it work. Something has to be done. And what the president is trying to do is say look, let’s not raise taxes. Let’s not cut benefits, let’s find a third way, a way through this hole that allows people to build ownership, build a stake in the economy, to build a cushion for their future, and so that we don’t have to change the system as it exists for those people that are in retirement or very close to it but gives the youth of America a way to build assets, a way to become owners and a way to become more personally responsible in the future.
GWEN IFILL: Mr. Spriggs, I’m going to give you a chance to say whether you agree with Mr. Wesbury’s assumption of what you would think about this but also on this issue of tax reform, do you think these tax cuts should be permanent? Is that going to get the– achieve the goal the president says he wants it to, which is to stimulate the economy?
WILLIAM SPRIGGS: Well, it is not going to achieve the goal. We’ve already seen his economic stimulus in place for these four years. We still have fewer people employed today than when he took office and when he gets sworn in in January, we will have fewer people than when he got sworn in, in January four years ago. So the direction in which he has put the tax cuts have not been the stimulus the economy needed, not from the perspective of the American worker.
But in the case of Social Security, again, what you see is now the president has created this own problem himself. His tax cuts have made permanent are far bigger than the problem that we face in Social Security. If we just said we are not going to make the tax cut to the top 1 percent of the country permanent, that solves the whole Social Security program as it is currently conceived. You could say you are going to keep the benefits. You are going to keep everything the way it is, just say we are not going to make permanent that top 1 percent, so he has created his own problem. He exacerbates it because if you want to privatize, you are going to take money out of the system, which exacerbates the need to have money put into the system.
And many people who talk about privatization of course really don’t put together how are you going to not cut benefits if you are not going to raise taxes? It doesn’t solve itself simply through privatization. And you can’t really privatize the risk of a disability and the insurance program which are integral to the program. And it is a family-based program. It is not an individual program at the moment.
GWEN IFILL: OK, Mr. Wesbury, I also want to move on to one more thing before we run out of time, which is this issue of legal reform. The president made a point of showing up personally at the conference to make his point that there is this inter-connectedness between high health care costs, for instance, and liability costs. What is your sense of that?
BRIAN WESBURY: Right. Right. Well, I personally think that’s a real good idea. Let me go back one step here and just remind Mr. Spriggs that the election is over, the president won. The debate on the tax cut is done. People do not want higher taxes. That’s not going to happen. In fact, we are going to be debating making these tax cuts permanent and tax reform in the future….
GWEN IFILL: Excuse me. Were you advocating higher taxes, Mr. Spriggs?
WILLIAM SPRIGGS: I was saying that we shouldn’t make a tax cut permanent which is not necessarily higher taxes.
GWEN IFILL: We don’t want to really re-debate that issue. We should get back to legal reform –
BRIAN WESBURY: That’s my whole point. It’s over. The tort reform issue… the whole idea about creating more growth in the economy is that we always need to lower risk and increase rewards in the economy and that’s the way you encourage more entrepreneurial activity. That’s what makes the United States so great. America is the strongest economy in the world — we are technology leaders.
And to lower risk and raise rewards you have to attack a number of things. Number one: Taxes are a punishment to those who are successful very often. So what we have to do is move to lower after tax – or, excuse me higher after tax returns. And I think that’s what the tax cut last year did. We need to lower risks for investors, part of that is fighting the war on terror and making the world a safer place. But another part of that is reforming the tort system, the litigious society we have because there are so many risks to businesses in this country coming from the legal sector, which raises costs and lowers returns and I think that becomes an important part of making sure this economy stays strong for the long run.
GWEN IFILL: Mr. Spriggs, you have a chance to reform to that question about legal reform.
WILLIAM SPRIGGS: Well, I would say this, that we have set up a system in which litigation plays a role in correcting bad behavior for businesses because the cost of their errors are not borne by the company itself. So if you think of tobacco and what damage that did to our economy in terms of needless people– needless numbers of people dying from tuberculosis, from lung cancer, et cetera.
So if you think about that and then look at the recent withdrawal of an arthritis pain reliever, because the company understood that they were going to face litigation, meaning that we wouldn’t have needless doubts in that case, but tax reform has to be fair. We heard that word before about making it fairer. The economy has worked the way the economy wanted it and that is that the returns of all of the growth in the economy has been to capital income, not to American workers. To shift the tax burden further on to the American worker means that we are putting even more burden on the American worker.
GWEN IFILL: OK. William Spriggs and Brian Wesbury, thank you both very much.
BRIAN WESBURY: Thank you, Gwen.