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OPINION - December 2004 Tax-Reform Personnel At Arthur Laffer’s post-election conference in New York, supply-side optimists spontaneously decided to support Glenn Hubbard for the chairmanship of the Federal Reserve in the post-Greenspan period that begins in 2006. Bush administration insiders believe the choice will boil down to Hubbard or Martin Feldstein, two smart guys with tremendous credentials. However, many recall Feldstein’s mixed tenure as chairman of the Council of Economic Advisors under Reagan. After writing many fine articles about the benefits of lower tax rates, and after pointing out flaws in the Social Security system and health care entitlements, Feldstein upon taking office started crusading for higher taxes in order to narrow the budget deficit. As a Harvard economics professor and president of the prestigious National Bureau of Economic Research, Feldstein’s writings over the years have been terrific. Yet there is lingering suspicion that his work out-of-office is more reliable than in-office. Greenspan has generally done a good job in fending off tax-hike proposals that would curb economic growth and actually widen the deficit. The maestro has also been a strong supporter of Bush’s lower marginal tax rates on personal income, capital gains and dividends. No one doubts that Glenn Hubbard would similarly defend pro-growth tax reform as Fed chairman. While Bush’s top economic advisor, Hubbard was an unyielding proponent of the incentive power of lower tax rates to grow the economy. It was Hubbard who pressed harder than anyone in the White House for a reduction in the multiple taxation of investment. This made excellent sense. The stock market and business investment were hard hit by the recession Bush inherited. With the help of Hubbard, lower taxes on individual income, small business, investor dividends and capital gains were embraced by the president and signed in the tax bill of June 2003. The results have been stellar. In a recent Wall Street Journal op-ed, Hubbard emphasized the positive results of lower marginal tax rates on work, saving and risk-taking, linking lower “success taxes” to entrepreneurship and innovation. Once again, his steadfast and unyielding support of supply-side tax reform commends him strongly for the Fed job. As for the deficit problem, Hubbard agrees with Bush that the solution lies in maximizing economic growth, restraining discretionary domestic spending and reforming major entitlement programs. According to people close to the White House, current Council of Economic Advisors chairman Greg Mankiw will be returning to his teaching post at Harvard come January, leaving a key slot open. The president would be well served by appointing Art Laffer to that post. Formerly a close advisor to President Reagan, Laffer has been a senior advisor to businesses and financial institutions for more than 30 years. His real-world experience would greatly benefit the White House as it tackles tough questions on tax and Social Security reform. Laffer would also serve as a key liaison to Wall Street, where he is highly regarded as a prescient forecaster and strong communicator. Washington insiders also believe that Treasury man John Snow will remain in his post at least through mid-2005, and maybe longer. Snow has long argued for lower tax burdens on saving and investment, thereby agreeing with Bush’s view that the double-taxation of capital is just plain bad for economic growth and job creation. With Hubbard, Laffer and Snow in the mix, Bush’s ambitious second-term economic agenda will have a much greater chance of success than most inside-the-Beltway pundits believe possible.
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