QandO

September 15, 2004

9/10 Kerry outlines Economic Plan
Posted by McQ

Somebody ought to tell John Kerry that 9/11 actually happened and while it may surprise him to know that, it may also explain, among other occurrances, why the economy had a rough time. Of course the other occurrances include an inherited recession and a war. You'd think a guy running for president would know that. Instead we get this:

Since January 2001, the economy has lost 1.6 million private-sector jobs. The typical family has seen its income fall more than $1,500, while health costs are up more than $3,500.

Recession, 9/11, war.

And again, we then get this:

The economy still has not turned the corner. Over the last year, real wages are still down and even the jobs created in the past 12 months represent the worst job performance for this period of a recovery in over 50 years. Indeed, the total of 1.7 million jobs created over the last year is weaker than even the worst year of job creation under President Clinton, and below what is needed just to find jobs for new applicants entering the work force.

It hasn't turned the corner, but its created 1.7 million jobs, making up the 1.6 million lost in the wake of what?

Recession, 9/11, war.

Unemployment is lower now than it was under Clinton when he ran in 1996. Lower in the wake of?

Recession, 9/11 and war.

And as has been demostrated here, "real wages", whatever that term means, in terms of total compensation, is not down, its up.

In the wake of recession, 9/11 and war.

When the economy needed short-run stimulus without increasing the long-run deficit, President Bush got it backwards, passing an initial round of tax cuts that Economy.com found had no effect in lifting us out of recession. He then passed more deficit-increasing tax cuts that Goldman Sachs described as "especially ineffective as a stimulative measure." When small businesses and families needed relief from skyrocketing health-care and energy costs, he chose sweetheart deals for special interests over serious plans to reduce costs and help spur new job creation.

Of course Alan Greenspan pointed to the tax cuts as one of the single most important acts which lifted us out of the recession early and quickly.

As for Economy.com, I couldn't find anything at their site which said the tax cuts didn't help lift us out of recession. In fact, I found exactly the opposite:

The economic impact of the combined monetary and fiscal stimulus has been substantial. Indeed, if monetary and fiscal policy had remained unchanged during the Bush Presidency, the recession that began in early 2001 and ended later in the year, would have likely instead lasted through much of 2003.2 The economy would still be shedding jobs.

Over the entirety of the Bush Presidency, monetary and fiscal stimulus have added an estimated 2.5 percentage points to per annum real GDP growth (see Table 3). Of that, 1.5 percentage points is due to an easier monetary policy and 1 percentage point to fiscal policy. Of the contribution to growth from the fiscal stimulus, the bulk has been from surging defense spending and income tax cuts to lower and middle income households.

At the peak of the stimulus in early 2002, combined policy stimulus provided a whopping 4 percentage points to real year-over-year GDP growth (see also Chart 1). Even during the first quarter of this year, nearly one-half of the close to 4% annualized real GDP growth in the quarter was due to the policy stimulus.

Anyway, blatant nonsense aside (you can't fix a problem unless you create one), what is Kerry's plan? Here's the 1, 2, 3, 4:

With the right choices on the economy, America can do better. American businesses and workers are the most resilient, productive and innovative in the world. And they deserve policies that are better for our economy. My economic plan will do the following: (1) Create good jobs, (2) cut middle-class taxes and health-care costs, (3) restore America's competitive edge, and (4) cut the deficit and restore economic confidence.

OK, let's get into the how:

•Create good jobs. I strongly believe that America must engage in the global economy, and I voted for trade opening from Nafta to the WTO. But at the same time, I have always believed that we need to fight for a level playing field for America's workers.

I am not trying to stop all outsourcing, but as president, I will end every single incentive that encourages companies to outsource. Today, taxpayers spend $12 billion a year to subsidize the export of jobs. If a company is trying to choose between building a factory in Michigan or Malaysia, our tax code actually encourages it to locate in Asia.

My plan would take the entire $12 billion we save from closing these loopholes each year and use it to cut corporate tax rates by 5%. This will provide a tax cut for 99% of taxpaying corporations. This would be the most sweeping reform and simplification of international taxation in over 40 years. In addition, I have proposed a two-year new jobs tax credit to encourage manufacturers, other businesses affected by outsourcing, and small businesses that created jobs.

Outsourcing is a tiny problem in the job market. Taxation isn't the only problem. It has to do with wages. It has to do with regulation. It has to do with competitiveness. Addressing only the taxation angle will not stop outsourcing at all. Again, as pointed out here, there's another side to the dynamic. Insourcing. The US seems to be doing pretty darn well on the "insourcing" front because of the productivity of its workers.

The net trend has been a plus for insourcing of jobs over outsourcing them.

American businesses are the most competitive in the world, yet when it comes to enforcing trade agreements the Bush administration refuses to show our competitors that we mean business. They have brought only one WTO case for every three brought by the Clinton administration, while cutting trade enforcement budgets and failing to stand up to China's illegal currency manipulation. That not only costs jobs, it threatens to erode support for open markets and a growing global economy.

Actually American businesses aren't the most competitive in the world. They're the most productive in the world. Where much of their lack of competitiveness comes from is over-regulation and taxation. Notice Kerry doesn't even try to address these ... instead its all the rest of the worlds fault for not playing fair. My suggestion ... clean up the regulation and taxation mess at home and then if we're still not competitive, look at the rest of the world.

• Cut middle-class taxes and health costs. Families are being increasingly squeezed by falling incomes and rising costs for everything from health care to college. But spiraling health-care and energy costs squeeze businesses too, encouraging them to lay off workers and shift to part-time and temporary workers.

Under my plan, the tax cuts would be extended and made permanent for 98% of Americans. In addition, I support new tax cuts for college, child care and health care--in total, more than twice as large as the new tax cuts President Bush is proposing.

Keep in mind, he is embracing permanent tax cuts for 98% of Americans. That leaves the top 2% as the main bill payers for all of Kerry's programs. And his programs of new spending add up to almost 2 trillion dollars. Estimates say that increasing taxes on the top 2% of income earners to the same level they were under the Clinton administration (and that is Kerry's stated plan) will raise $600 billion.

Where will the rest come from? That's a very real and important question Kerry needs to answer.

I have proposed a health plan that would increase coverage while cutting costs. It builds on and strengthens the current system, giving patients their choice of doctors, and providing new incentives instead of imposing new mandates.

My health plan will offer businesses immediate relief on their premiums. By providing employers some relief on catastrophic costs that are driving up premiums for everyone, we will save employers and workers about 10% of total health premiums.

Probably one of the most significant problems in spiraling health care costs are law suits. Malpractice law suits and the cost of malpractice insurance drives the decision of many MDs to call it a day and retire because they can no longer afford the malpractice premiums demanded.

Kerry, as is typical of candidates, offers more for less. His solution is government. Any of you who've any had experience with goverment programs know that you rarely, if ever, get more for less.

Our hospitals and doctors have the best technology for saving lives, but often still rely on pencil and paper when it comes to tracking medical tests and billing. As a result, we spend over $350 billion a year on red tape, not to mention the cost of performing duplicative or redundant tests. My plan will modernize our information technology, create private electronic medical records, and create incentives for the adoption of the latest disease management.

Kerry promises a revamp of the medical bureaucracy? How? This has been a candidates pipe-dream for years. And the only area government can impact is its own bureaucracy: Medicare and Medicaid.

He ignores the fact of that which drives "duplicative or redundant tests" is the possibilty of a law suit. Its medical CYA which drives those tests as much as anything. Streamlining the bureaucracy does not effect that basic truth and won't effect at all the desire for doctor's to protect themselves from potential financial ruin.

And I won't be afraid to take on prescription drug or medical malpractice costs. We will make it easier for generic drugs to come to market and allow the safe importation of pharmaceuticals from countries like Canada. Finally, we will require medical malpractice plaintiffs to try nonbinding mediation, oppose unjustified punitive damage awards and penalize lawyers who file frivolous suits with a tough "three strikes and you're out" rule.

This plan will make our businesses more competitive by making our health care more affordable.

Finally Kerry gives a swipe at the malpractice problem. His solution "lets try nonbinding mediation". Yeah, there's a winner. And who's to determine what "unjustified punitive damage awards" are? How will they determine whether a suit is frivolus? And how is something which gives you three shots "tough"?

Why won't he just come out and say "I will ask Congress to pass a comprehensive tort reform act to lower the cost of medicine to everyone?" Instead we get nonsense about nonbinding arbitrarion, "tough" three strikes and your out and the usual about "unjustified damage awards" and "frivolous law suits".

• Restore America's competitive edge. America has fallen to 10th in the world in broadband technology. Some of our best scientists are being encouraged to work overseas because of the restrictions on federal funding for stem-cell research. President Bush has proposed cutting 21 of the 24 research areas that are so critical to long-term growth. We need to invest in research because when we shortchange research we shortchange our future.

Who's "we"? As a libertarian, I want businesses, not government (except in the area of defense) driving research. I agree with the cuts in federal research dollars. What government ought to do is encourage research, not pay for it all. '

Businesses know, especially those in cutting edge technologies, that R&D is critical. The market is a much better arbiter of where research money should go than is government. Let the maket work.

My plan would invest in basic research and end the ban on stem-cell research. It would invest more in energy research, including clean coal, hydrogen and other alternative fuels. It would boost funding at the National Science Foundation and continue increases at the National Institutes of Health and other government research labs. It will provide tax credits to help jumpstart broadband in rural areas and the new higher-speed broadband that has the potential to transform everything from e-government to tele-medicine. I would promote private-sector innovation policies, including the elimination of capital gains for long-term investments in small business start-ups.

If you look at stem-cell research right now, the money is flowing to adult stem-cell research, not fetal stem-cell research. Why? Because that is where some fairly substantial progress is being made. I'll again make the point that absent a profit motive government spending in this area tends to be highly inefficient.

As for the "rural broadband' initiative, its fluff thrown out there to the "fairness crowd". If it isn't cost efficient to put broadband into the rural areas yet, it won't be if Kerry does it. The difference? Instead of potential customers and businesses picking up the tab, you the tax payer will instead.

• Cut the deficit and restore economic confidence. When President Bush was in New York for the Republican convention, he did not even pay lip service to reducing the deficit. His record makes even Republicans wary. From missions to Mars to a pricey Medicare bill, President Bush has proposed or passed more than $6 trillion in initiatives without paying for any of them. The record is clear: A deficit reduction promise from George W. Bush is not exactly a gilt-edged bond.

Key point "propsed or passed". Passed is much less that proposed. Now I'm not at all convinced that Bush has come close to that $6 trillion figure that Kerry pushes out there, but suffice it to say, I'm not happy with Bush's performance in this regard either.

But here's the problem. After taking Bush to task, Kerry neglects to mention that he's proposed almost $2 trillion in new spending and has told us he can pay for all of it on the back of tax increases to the wealthy.

Its nonsense, of course. It does not compute. But more importantly, it certainly does nothing to imbue me with the confidence that Kerry is serious about deficit reduction.

Americans can trust my promise to cut the deficit because my record backs up my word. When I first joined the Senate, I broke with my own party to support the Gramm-Rudman-Hollings deficit reduction plan, which President Reagan signed into law. In 1993, I cast a deciding vote to bring the deficit under control. And in 1997, I supported the bipartisan balanced budget agreement.

I think we're all familiar with the "I cast the deciding vote" hyperbole. But more importantly what everyone should be familiar with is Kerry's past deficit reduction proposals have mostly been on the back of defense and intelligence appropriations as is dramatized quite succinctly in his 1984 memo outlining the defense systems he'd like to see cut as well as other votes over the years.

Yes the deficit needs to be cut, but I've seen nothing in Kerry's record to indicate he'd attack the discretionary spending side of the ledger and cut social programs. I've seen every indication, however, that he'd be willing to go after defense spending which, with the ongoing war on terror, is critical.

I will restore fiscal discipline and cut the deficit in half in four years. First, by imposing caps, so that discretionary spending--outside of security and education--does not grow faster than inflation. If Congress cannot control spending, it will automatically be cut across the board. Second, I will reinstitute the "pay as you go" rule, which requires that no one propose or pass a new program without a way to pay for it. Third, I will ask for Congress to grant me a constitutionally acceptable version of line-item veto power and to establish a commission to eliminate corporate welfare like the one John McCain and I have fought for.

A) He can't impose caps. He can demand them. He can lobby for them. He can ask that they be followed. But Congress enjoys the power of the purse, not the President.

B) Pay as you go sounds great, doesn't it? But we've been there and done that. What's the deficit today? What makes John Kerry think as president he'll be able to make "pay as you go" work when as a Senator he ignored it?

C) Line item veto ... ain't going to happen. It would require amendment of the Constitution to be "Constitutionally acceptable". No way that happens. If it had a chance, a Republican Congress and a Republican President surely would have seen it passed. More election fluff.

I am not waiting for next year to change the tone on fiscal discipline. Every day on the campaign trail, I explain how I pay for all my proposals. By rolling back the recent Bush tax cuts for families making over $200,000 per year, we can pay for health care and education. By cutting subsidies to banks that make student loans and restoring the principle that "polluters pay," we can afford to invest in national service and new energy technologies. My new rules won't just apply to programs I don't like; they will apply to my own priorities as well.

"We can pay" for healthcare, education, defense, deficit reduction, permament tax cuts for 98% of the population, and 2 trillion in new spending proposals with tax increases on 2% of the tax payers?

Maybe you can suspend disbelief and buy into that, but I just can't.

This isn't much of an economic plan in my estimation. Its a "I'll do it better" plan built on a mischaracterization of where we've been (recession, 9/11, war) and where we are (1.7 million new jobs, 5.4% unemployment, increased productivity, total compensation up, and the highest homeownership percentage in the nation's history).

It identifies problem areas, but then misses or overstates government abilities to solve them.

Its a true "candidates" manifesto: Long on charges, short on meaningful specifics, and redolant of the stink of promises impossible to keep.

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