Politics

Bush Ready For Rebound

By CBSNews.com staff CBSNews.com staff

July 2, 2001 / 1:47 PM EDT / CBS

President Bush believes the economy will begin to rebound following interest rate cuts by the Federal Reserve and the signing of his $1.35 trillion tax cut, White House spokesman Ari Fleischer said Monday.

"The nation's economy has been in an approximate one-year slowdown. It is reaching the point, where, as a result of the six cuts in rates by the Federal Reserve, in combination with the tax cut that is about to be received by the consumers, the president believes that the economy will start to come back," Fleischer told reporters.

He noted "most economists" believe the recovery will begin late this year. Last week, Treasury Secretary Paul O'Neill struck the same theme, predicting that a $40 billion flood of tax rebate checks this summer will give the economy a needed boost that should carry into next year.

But while optimism appears virtually unanimous in the Bush administration, indicators of the economy's health paint a more confusing picture. In recent news:

The New York Times reported in Monday's editions that widely held retirement equities packages, known as 401(k) accounts, declined broadly in value over the last year, despite some signs of strength in stock markets, shrinking $46,740 in 2000 to $41,919 in 1999.
Last week, the government reported that the unemployment rate was up to 4.5 percent, with businesses cutting 114,000 jobs from America's payrolls during the month of June.
Consumer confidence rose for the second consecutive month in June. The New York-based Conference Board said that its Consumer Confidence Index rose to 117.9, up from 116.1 in May.
Orders to U.S. factories for costly manufactured goods rebounded last month from a sharp drop in April as demand for cars and semiconductors registered especially strong increases.
New home sales posted a respectable gain in May.

The conflicting numbers have engendered a debate over the federal budget surplus, estimates of which have shrunk somewhat because of declining revenues due to falling corporate profits and incomes.

White House economic adviser Lawrence Lindsey said last month the weak economy would trim the budget surplus to about $200 billion for the current fiscal year from $281 billion the Bush administration forecast in April.

That led to predictions that future surpluses would be much less than anticipated, possibly threatening to dip into Social Security and Medicare "off-budget" surpluses deemed politically untouchable.

Mr. Bush denies that is a possibility. On Friday, a spokeswoman said the president was considering delaying other tax breaks he hoped to give — like credits for energy conservation and charitable donations — because of the shrinking surplus.

"We need to make sure that there is enough of an on-budget surplus to accommodate…any additionatax cuts," White House budget office spokeswoman Amy Call said, referring to a new round of tax cuts.

Officials said there has been no decision on whether to change Mr. Bush's timetable.

"This is just a discussion at this point," Call said.

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Mr. Bush has called for further tax breaks such as $4 billion in tax credits over 10 years to encourage purchases of fuel-efficient "hybrid" vehicles, and expanded tax credits for alternative energy sources.

These are core conservation measures of an energy plan environmentalists and Democrats have criticized as overly reliant on production of oil, coal and nuclear power.

The president also has proposed expanding tax deductions for charitable giving, such as allowing taxpayers who do not otherwise itemize deductions to claim a deduction for donations to charity.

Senate Democrats say any new tax cuts must be offset by closing other tax breaks. But Mr. Bush is determined not to raise any other taxes, officials said. "The president was not interested in increasing taxes," Call said.

White House budget director Mitch Daniels was quoted in USA Today on Friday as saying any tax increase would slow down the economy. Referring to Mr. Bush's proposed tax breaks, Daniels said, "We're well aware that reality might dictate some delay in pursuing some of these measures."

Dear Taxpayer…

At a cost of $21 million, the IRS will send taxpayers a letter explaining this year's tax refund and giving Congress and President Bush credit for signing it into law.

But Daniels said on Tuesday that Social Security would not be "raided," nor would Medicare revenues be used for other purposes.

The House Ways and Means Committee is expected to begin work on Bush's charitable giving proposals as soon as this week, as the Senate Finance Committee begins hearings on his energy plan.

The first part of the $1.35 trillion tax cut, a reduction in the government's share of taxes withheld from paychecks, went into effect last week.

Boosted by surging tax revenues, the federal budget posted a record $236 billion surplus in fiscal year 2000. Excludig Social Security funds, the surplus was $87 billion.