President Bush is correct in saying “the long run, Americans can be confident about our economic growth.” Despite the current economic slowdown, productivity remains healthy and most economic fundamentals are strong. The U.S. economy will recover from this slowdown.
However, tax rebates and more government spending will not accelerate any recovery. Every dollar Washington “injects” into the economy must first be taxed or borrowed out of the economy. Such handouts should not be confused with policies that create more growth by encouraging working, saving, and investing. Rebates did not succeed in 2001, and likely will not in 2008.
Instead, Congress and the President should address America’s high corporate tax rate which discourages business investment. They should address the capital gains “inflation tax” that discourages savings and investment. Most importantly, Congress should heed the President’s call to make the tax cuts permanent. Otherwise, the uncertainty of future tax policy will continue to deter businesses and investors from beginning longer-term investments.