February 5 , 2003

With the State of the Union, President Bush is asking the American people to accept the priorities he outlined for his government.  It is not my role to assess whether the President has answered whether we should or if we would go to war with Iraq soon.  Instead, I will dwell on the economic initiatives that he emphasized and outlined in his speech. 

Not surprisingly, President Bush began with his assessment of accomplishments: education reform, government re-organization, long term tax reductions, and increased liabilities for breeches of corporate governance responsibility. 

He then outlined portions of his economic stimulus program.  Those long term tax cuts are needed now, not later, to help insure that "every man and woman who wants a job can find one."  Frankly, few economists know what he is talking about in the job finding area.

 Is our goal to eliminate all involuntary unemployment regardless of how it was caused (perhaps by inappropriate wage offers) and independent of any inflationary costs that will occur?  If not, then what did the President mean by his job finding comment?

Furthermore, the $3000 re-employment grants so innovatively introduced in his stimulus package speech were absent from the State of the Union speech.  Also receiving no attention was the widening of the 10 percent tax bracket and the short term adjustment of the alternative minimum tax threshold.  Are these no longer of the same priority as the reduced marginal tax rates?

While the dividend tax exclusion was prominently discussed, it was separated from the remainder of the President's proposed tax initiative.  Does this mean that he would allow it to be considered separately in the Senate, where it almost certainly cannot now pass in its current form?

A 4 percent limit on the growth of discretionary government spending was related to the income growth of the average household.  Will this be binding or only a target for restraining the growth of government? Why was the growth of households not added to the growth of average household incomes to determine government spending limits?

Does the President really believe that enough expansion in the tax base can be accomplished to offset the reduction in tax rates when government spending is restrained?  Even the Reagan tax cuts could not accomplish that, and they were made from higher marginal tax rates than the Bush proposals. 

If the government is to provide medical support for the elderly, the President correctly asserted that prescription drugs should be included in that support.  Otherwise, the financially strained will seek costly hospitalization where drug charges are paid by government over home prescription drug therapy.

The President also demanded tort reform, at least partially to restrain the medical costs that households and the government will face.  More will be said about this in another column. 

Should the government finance risky innovations that will improve the ability to reach environmental goals?  At least in the development of hydrogen powered vehicles, an estimated $1.2 billion task, the President says yes.  Now that this precedent for government financed innovation is established, what is the criterion for government saying no?

Is it appropriate for the government to facilitate charitable works.  A $350 million mentoring program (is this government sponsored Big Brothers and Big Sisters?), a $600 million program to reduce habitual drug addiction, and a $15 billion effort over five years to reduce AIDS in Africa all got the President's endorsement. 

The President's argument was that we can do it (costs have fallen), we have responded in the past, we can afford to do it, and it is needed.  But can this not be said for most charitable efforts?  Why these, why now?

The last spending initiative, the development and deployment of vaccines, does not need to answer those questions.  Private demand for these vaccines will not support their development, but the national interest requires that our infrastructure work even if biologically attacked.  This $6 billion expenditure is a proper use of government.  Let us only hope that the vaccines will prove to be unnecessary. 

But in declaring that the vaccine program is proper, what must be said about the other programs.  Is there enough social gain to justify government involvement in hydrogen powered vehicles (I say yes, but others certainly could argue no)?  By containing AIDS in Africa are we furthering American interests?  I believe we are, but others certainly could argue we are not. 

In the end, I am still struggling to determine the economic principles that support the President's initiatives and justify his exclusions.  What are the priorities of government?  I did not see them clearly in the choices made by President Bush?


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