WAKE UP, WASHINGTON: ECONOMY IN PERIL Friday,March 23,2001 By STEPHEN MOORE

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SORRY to disappoint, but Alan Greenspan's not going to bail us out. Fed Chairman Greenspan has now cut interest rates three times this year, yet the economy continues to slide deeper into negative territory while the stock market continues to tank. By now it should be clear to even the biggest Fed-rate-cut enthusiasts that looser monetary policy alone isn't going to remedy America's current economic malaise.

The primary economic sickness today is not that money is too scarce, but rather that taxes are way too high. Since 1995, the federal tax burden has ratcheted from 18 percent to 21 percent of national output. The last time taxes got this high was in the late 1970s and the era of stagflation. (Remember 13 percent inflation and 7 percent unemployment?) Back then, it took a supply-side tax cut twice as large as George W. Bush has proposed to rescue the U.S. economy.

For the last several months now, my organization, the Club for Growth, has been pestering Congress and the White House for passage of a much bigger tax cut than candidate George W. Bush proposed back in 1999. Now even Democratic leaders in Congress are calling for a bigger tax-cut stimulus this year.

Bush plan's would cut taxes by a microscopic 0.6 percent this year and just 2 percent next year. That was bold when the economy was growing at 5 percent. (In fact, back then, Bush's critics said that a tax cut would "overheat the economy.") But today it seems almost designed to prolong, rather than truncate, the economic slump.

The major supply-side growth stimulant from the Bush plan, the cuts in the highest marginal income-tax rates, brings rates down from 39.8 percent now to 38 percent next year. This is merely a symbolic tax cut, not a truly substantive one.

The Democrats' counterproposal is even more economically illiterate. The Democrats' plan is so captive to class-warfare rhetoric, it cuts the bottom tax rate (from 15 to 10 percent) but not the higher brackets. Yet, as John F. Kennedy and Ronald Reagan proved during the prosperous '60s and '80s, it's the highest income-tax rates that have the most smothering effects on work, investment and risk taking.

We need a major tax-rate-reduction plan adopted and made effective immediately. The price tag should be about twice as large as Bush has proposed. (This would still leave room for budget surpluses every year over the next decade.)

The top income-tax rate should come down to 33 percent, as Bush has suggested - but not by 2006. By the end of this year. Why wait, when the economy needs the pick-me-up right now?

The most promising tax-cut stimulus could come from a capital-gains tax cut. Cutting capital-gains taxes immediately boosts stock values by increasing the after-tax rate of return on equities.

In 1997, after the cap-gains tax went from 28 percent to 20 percent, investment levels and productivity surged, stock values soared - and tax receipts collected from the rich from the tax actually rose. The economy could sure use that kind of adrenaline rush again - pronto.

Finally, if we want to help the lowest-income workers directly, why not cut the payroll-tax rate, too? This regressive 15.3 percent tax is paid on the first dollar of income earned. And it expropriates about $100 billion a year more than is used to pay Social Security benefits every year. These extra funds are stashed away in a fraudulent "trust fund." Why not cut the tax by 2 or 3 percentage points to encourage businesses to expand employment, and to increase the paychecks of every worker, regardless of income?

Can we afford a $3 trillion tax cut, as I'm suggesting? The debt hawks in both parties will squawk "fiscal irresponsibility!" - they want the money dedicated to retiring the national debt. They don't seem to understand that if we don't get the economy back on track soon, the surpluses they're so eager to protect will vanish as fast as they arrived. The prosperity of the late '90s created our budget surpluses, not the other way around. Strong economic growth is a precondition to a balanced budget and debt retirement.

After all, surpluses are supposed to be used for rainy days. In fact, most state governments refer to budget reserves as "rainy day" funds. Well, it's time for Congress to take a look out the window.

The Dow is down below 10,000; the Nasdaq's under 2,000. In just the past few weeks, major employers (including Intel, AOL, Motorola, Chrysler and Goldman Sachs) have announced layoffs of thousands of workers each. It's raining out. Let's hope Congress delivers a tax cut before the flash-flood warnings arrive.

Stephen Moore is president of the Club for Growth.

-- dumbfounded by the stupidity (moreinterpretation@ugly.com), March 23, 2001