President Bush’s Growth Plan

JIM LEHRER:

Now, some give-and-take on the president's plan between Mitchell Daniels, director of the White House Office of Management and Budget, and Congressman John Spratt, Democrat of South Carolina, the senior Democrat on the House Budget Committee.

Congressman Spratt, if everything the president proposed today was, in fact, done, what do you think the effect would be on the economy?

REP. JOHN SPRATT (D-S.D.):

Well, that's uncertain. The problem is, the impact of this bill is a lot less than what we proposed in the target year, 2003. This is the year, here and now, when we need to boost the wobbly economy we've got, get it on its feet, and get it running again.

We don't think that bill has that much impact on the short term. And on the long term, we're very concerned about the cost of the bill, $674 billion, on top of the existing deficit, running now $200 billion to $300 billion, and we'll run at that level for ten years to come.

That can only enlarge the national debt, and that national debt will become a fiscal drag on our economy, and could actually diminish growth in the long run.

JIM LEHRER:

All right, well, let's take these two aspects one at a time.

Mr. Daniels, the short term: You heard what Congressman Spratt said, it really doesn't do enough, it doesn't stimulate the economy.

MITCHELL DANIELS:

Well, the president I think believes that he's proposed a balanced package. It's not aimed merely at the short term, but at the sustained growth we need over the years to return to balancing the budget and to pay the bills we have now for some very urgent priorities facing the country.

There will be some very immediate impact from this bill if passed, as we hope it will be, including direct and immediate assistance to those receiving the child tax credit, and of course lower withholding immediately for tens of millions of Americans. So we think it has immediate effect, but also lasting effect.

JIM LEHRER:

When you say "immediate effect," how does that translate into stimulating the economy?

You know, we know about the specifics. As you say, there's the child credit, there are all kinds of specific things, but what is that supposed to accomplish in the short run?

MITCHELL DANIELS:

First of all, "withholding" would drop immediately and retroactively for those in the lower end as the ten percent bracket expands, and to those eligible for the child credit and marriage penalty, those people whose scheduled rate reductions would be accelerated into 2003, so there's immediate effect there.

And I think there would be immediate effect on the investment climate from the passage of the dividend reform that the president has suggested. So this ought not be solely about — and is not in the president's mind — solely about stimulus, so to speak, but about growth and sustained growth for this economy over time.

JIM LEHRER:

Congressman Spratt, what about the tax cut idea, that this will put money in people's pockets immediately that they can go out and spend, and that will stimulate the economy?

REP. JOHN SPRATT:

Well, what we propose to do is to engage in some tax cutting, too.

We would have an immediate rebate to families and individuals — truly immediate. It would be based upon 2001 income. Couples would get up to ten percent of their earned income up to $6,000; $600 per couple. It would go to them in one lump sum. They could put it in their pocket and spend it immediately.

Small businesses would get an opportunity to buy something this year, some piece of equipment, and expense it fully up to $50,000. Businesses, larger businesses, could buy new plant and equipment, and under our proposal, if they did it in 2003, the target year, they could get a 50 percent bonus depreciation. They could take 50 percent of the cost of the acquisition and write it off this year. All of that is here and now. It's immediate in the target year 2003.

JIM LEHRER:

What do you think of that idea, Mr. Daniels, rather than the president's?

MITCHELL DANIELS:

Obviously, I think the presidents has the more bold and comprehensive proposal, but there are elements here in which we may find common ground.

Small business expensing is a good idea. The president would go a little further than Congressman Spratt and his colleagues would, but there's something we seem to agree about.

And as with the president's first two economic growth initiatives, his tax relief of '01 and the program, stimulus program of last year, he'll be reaching out and searching for — and, I assume, finding it once again — bipartisan support for what he wants to do.

JIM LEHRER:

Congressman Spratt, another specific Mr. Daniels mentioned a moment ago that's a big part of the president's plan, which is to eliminate the tax on stock dividends. What's your position on that?

REP. JOHN SPRATT:

It may have merit, but it should be in a tax reform bill. It has very little to do with stimulating the economy right now in the year 2003.

In addition, it costs a lot of money. It costs a lot of federal revenues — $360 billion over the next ten years.

Bear in mind that this past year, when we closed the books on fiscal 2002, we had a deficit, if you don't include the Social Security surplus, of $315 billion. Now, we'd like to get the budget back on the path it was on in 2001 when we were looking at surpluses out through the future.

And we certainly won't recover that path if we have another huge tax cut — $674 billion. This is not the only tax cut on the Bush agenda. They also want to make permanent the tax cuts that were enacted in June of 2001. That will cost another $500 billion to $600 billion in '11, '12, and '13, those out years.

So that means we're looking at a reasonable tax agenda, a reasonably estimated tax agenda for the Bush administration, if you add this $674 billion piece to it, of more than a trillion dollars, on top of the deficits we're running now and will run for the foreseeable future.

That's our concern about the long run, what it will do to the economy and the budget in the long run.

JIM LEHRER:

Mr. Daniels, do you agree with Congressman Spratt's numbers there, in terms of what the total is in tax cuts that you all are asking for?

MITCHELL DANIELS:

No. I mean, we know those numbers are wrong because they're calculated on the old static model that we are still unfortunately stuck with. They assume nothing ever changes– no behavior, no economic activity. Nothing everything changes as a result of new incentives and lower taxes. We know that's not true. But, look, let me go back to the dividend issue for a minute.

JIM LEHRER:

Yeah, make the case for the dividend cut.

MITCHELL DANIELS:

Yes, thanks. You know, this is, first of all, as I said, I think a good-faith difference between the president's plan and this first of many Democratic plans that I gather we're going to see. Each presidential aspirant seems to have his own, also.

And that means that the president is looking both at the immediate future and at the longer term, and building a better investment climate that might lead to more investment by businesses, a lower cost of capital for businesses, and also more value in the holdings of those Americans who now, in the millions, own stock — a very positive thing for the economy over time.

Basically, it's a matter of fairness. You know, another good southern Democrat, President Carter, was the first to call for the end of double taxation some twenty-some years ago, and it remains a good idea today, a matter of simple equity.

JIM LEHRER:

But would you agree with Congressman Spratt that this is not part of an immediate stimulus part of this plan? In other words, getting rid of the dividend tax isn't going… isn't going to stimulate the economy tomorrow.

MITCHELL DANIELS:

It depends how you mean. You know, we can't know for certain what the effect of anybody's… any provision of anybody's plan will be.

But there's a very good likelihood, I think, of some prompt effect in terms of greater investor confidence, and perhaps some different behavior on the part of business — maybe a little better confidence on businesses' part in making the investments this economy needs to get running.

JIM LEHRER:

Congressman Spratt, what is your general feeling about the dividend tax — I mean, whether or not… whatever it does to the budget deficit, your earlier point, what do you think of it?

Should it be eventually eliminated, or what?

REP. JOHN SPRATT:

We've had an income tax since 1913, a corporate income tax since 1909. This issue has been there for all that time, nearly a century now and it's never been totally resolved. One of the reasons is, it cost quite a bit in the way of revenues. So usually if someone was proposing to change the taxation of dividends, he was obliged to come up with something that would offset the revenue losses as a result of that. And nobody has ever come up with something to offset the revenue losses.

And in particular, the Bush administration this time simply proposes this, they could also propose it in the context of overall corporate tax reform — because there are lots of anomalies in the corporate tax code allowing corporations that really make money not to pay taxes.

We could have what we had like in 1986, with President Reagan, tax reform that's revenue neutral. This could be part of it, and I would be glad to support it. But in the meantime, the posted cost on the Treasurer's Web page of this proposal is $674 billion. They say that's what it will cost.

We know also that the Bush administration is pushing hard — the Speaker said just moments ago he intends to make permanent the tax cuts enacted in June of 2001. That will cost another $600 billion. $600 billion plus $674 billion is $1.2 trillion.

What do we do to the budget? There may be some dynamic effect, some growth effects that will diminish that amount over time, but not by $1.2 trillion. It's going to put the budget in an intractable position. We're going to have deficits forever, as far as the eye can see.

JIM LEHRER:

Deficits forever, as far as the eye can see, Mr. Daniels, as a result of this?

MITCHELL DANIELS:

Well, we all certainly hope not, and we all ought to work together to make sure that's not the case. I think the Congressman is right to remain concerned about deficits. He's been a leader on this issue, and I salute him.

The president places a very high priority on limiting and eliminating deficits, but there are some circumstances forced on him that created these deficits in the first place: A war that came to us a year-plus ago, the need to defend the homeland in ways we never have had to before, and now, as the president sees it, the need to turn a moderate recovery into a strong recovery.

And those priorities simply come first in his eyes, and I think in the eyes of most Americans.

JIM LEHRER:

But not in yours, Congressman Spratt?

REP. JOHN SPRATT:

Look, these causes are all important. But you have to recognize that the defense cost is going to be with us for some time.

The war on terror is going to be with us for some time. Those factors are now part of the budget, and they're not going away in the near future. And if you put them into the budget, as I've said, we've got deficits this year, next year — this year, $315 billion; last year, $315 billion. And they're going to get worse if we keep adding tax cuts like this and not offsetting them. The way to do tax cuts like this, like the dividend issue, is to have them as part of a bigger tax reform bill, so that they're nearly, at least, revenue neutral.

JIM LEHRER:

Is he wrong about that, Mr. Daniels, that this should be part of tax reform rather than economic stimulus?

MITCHELL DANIELS:

Well, it could have been, I suppose, but we have a problem that's with us right this moment, and again, that is that recovery, at least as the president sees it, is unsatisfactory.

We need to generate more income and more jobs. The rest of the world, of course, is struggling worse than the United States' economy. We cannot look to other economies for strength to help pull us out of this. The president simply wasn't prepared to roll the dice or wait on events. He wants to act, and has proposed to do so in a way that we hope will eventually attract majority support.

JIM LEHRER:

Now, Congressman Spratt, the president used the word — to follow up on what Mr. Daniels just said — he used the word "urgent" in his speech today. He used it more than once, that action was urgent on the economy. Do you agree with that in general?

REP. JOHN SPRATT:

We think it's urgent. That's why we say the first thing let's do, let's go back and correct the mistake that the House Republicans made in November. Let's extend unemployment benefits to the one million people who were callously cut off on December 28. Let's do that first.

And we propose that in our bill. We set aside $18 billion for the extension of unemployment benefits.

We can't tell from reading Mr. Bush's speech exactly what he's supporting in the way of extension of unemployment benefits.

JIM LEHRER:

Well, let me stop and… I'll come back to you. Let me ask Mr. Daniels, what is the president's position on extending unemployment benefits?

MITCHELL DANIELS:

The president's position, as it's been all along — including last fall, when this fell between the cracks of the Democratic Senate and the Republican House — is that unemployment insurance should be extended.

But he's done something very interesting and important, we think, in the package presented today, and that suggests a creative new concept called "reemployment accounts" that aims to add to the current system a new incentive for people to get back to work. The current and, in some ways, antiquated system we have for unemployment too often incentivizes people to stay unemployed and not become working and productively employed again.

A "reemployment account" would trust the worker to make his or her own choices about what will get him back to work the fastest, and, if they were successful in doing so and in getting off of unemployment, allow them to keep the remainder of that reemployment account as a bonus. We think it's an exciting new concept that we hope the Congress will take up seriously.

JIM LEHRER:

And that's $3,000 that would go to each individual through the states, right, where they live?

MITCHELL DANIELS:

That's correct, and could be drawn on as the worker sees fit. And if the worker succeeds in getting back to work more quickly, there's in essence a hiring bonus for his success.

JIM LEHRER:

But to the specific issue of extending unemployment benefits to those who lost them in December, is the president in favor of extending them?

MITCHELL DANIELS:

Absolutely, and he proposed it today. What the president is not in favor of, however, is dramatic expansion of unemployment to people and to situations it has not covered before, like part-time work and things like this. This, we think, would be a mistake. We ought to move in a new direction that, as I said before, helps people concentrate on the job of getting back to work, not staying out of work.

JIM LEHRER:

Congressman Spratt, what do you think, first of all, what Mr. Daniels' answer was to the question about extending unemployment, and also the new part, the $3,000 reemployment benefit?

REP. JOHN SPRATT:

The reemployment account may be a good idea, but it's not an immediate solution to an urgent problem.

The legislation has to be drawn. The hearings have to be held. The law has to be passed through both Houses, and then regulations have to be written by the Department of Labor.

It will take months to get that accomplished. In the meantime, people are just barely getting by because their benefits have been cut off. The simple thing to do is to extend people's benefits. If you have a reform idea like this, let's pass it over the next several months, but let's not keep people waiting without benefits while we make up our mind how to do it.

MITCHELL DANIELS:

Jim?

JIM LEHRER:

Yes, Mr. Daniels?

MITCHELL DANIELS:

If I may, we're not in any disagreement here. The president supports moving quickly to renew and extend standard, old-fashioned unemployment insurance, and I didn't mean to imply anything else. But the reemployment accounts we think ought to be added as quickly as they can be as a new and creative option to the system we've known.

JIM LEHRER:

Let me ask you finally, before we go, what should people take away from this discussion that the two of you have just had, on this day that the president made his proposal, Democratic House proposal yesterday — is something going to be done beyond extending unemployment benefits quickly by the Congress and the president, Congressman Spratt?

REP. JOHN SPRATT:

Well, let me say about our proposal, it serves a dual purpose: Short-term stimulus to get a wobbly economy up on its feet and running again, and long-term responsibility to keep the budget in balance over the long term, because we think that's good for the economy.

JIM LEHRER:

But do you think you can work with the president quickly and get something out of here?

REP. JOHN SPRATT:

We will gladly sit down with Mitch Daniels and the president to try to work out some common ground. As I said when we unveiled our package yesterday, we designed it with an eye to common ground and easy enactment. We're looking for things that we can get done in a hurry, and we're looking for consensus so we can develop a will to get them done in a hurry.

JIM LEHRER:

Do you see common ground and easy enactment here, Mr. Daniels?

MITCHELL DANIELS:

I don't know about easy, but I'm very confident. I think the president is, too, that just as in '01 and in '02, for a third time we will act to strengthen the American economy, and we will find a way to do it on a bipartisan basis. And Congressman Spratt is a great person to start with. He's always been a constructive voice in these matters, and we look forward to working with him.

We know there's a diversity of Democratic views, and I suppose we'll have to learn over time what other voices in his party think. But the president I know will assign us the task of finding majority, and doing it on the broadest basis possible.

JIM LEHRER:

All right. Gentlemen, thank you both very much.