Bush Plans Economy, Tax Summit Dec. 15-16

The White House will host a two-day summit in Washington, DC, to gather expert opinions on a variety of topics related to the economy, including budget and tax reform, Social Security, extending expiring tax cuts and health care. The Dec. 15-16 summit will solicit input from the business community, including small businesses.

While details are not yet final, White House spokesman Scott McClellen said the summit will “feature four to six panels on a variety of issues, aimed at making sure America is the best place in the world to do business…” He also specified President Bush would invite business leaders from different sectors of the economy in an attempt to attract a variety of views. It is unclear whether the commitment to embracing different views, even views from outside the business community, will be realized as the list of invitees has not been finalized.

One of the major topics for the conference will be proposals to overhaul the tax code. President Bush has yet to name members to a bipartisan panel to examine options to overhaul the tax code and will most likely postpone any announcement until after the summit. Senate Finance Committee Chairman Chuck Grassley (R-IA) has recently made statements in the press (Financial Times, Nov. 17 — subscription only), alluding to the importance of having a tax reform proposal from the President early in 2005 to have any hope of it gaining traction next year in Congress. The White House has not outlined any dates by which it would expect a report from the panel, but Grassley and other leaders on Capitol Hill are doubtful about the prospect of the bipartisan panel producing recommendations before next summer.

In addition to tax reform, Social Security is likely to be a central aspect of the agenda of the summit. President Bush will use the two-day conference to help build support for his proposal to allow people to invest a percentage of their social security taxes in private accounts. This plan has received heavy criticism, particularly for the estimated $1 to $2 trillion dollars that would be borrowed to cover transition costs.

Office of Management and Budget Director Josh Bolten downplayed concerns about the additional borrowing. Bolten said regardless of how it was handled, the costs would not pose a serious threat to responsible budgeting or to the president’s promise to cut the deficit by half in five years. But critics on Capitol Hill and elsewhere dispute this rosy belief that private accounts will solve the Social Security crisis and not negatively impact the deficit. Grassley has said, “Anybody who thinks borrowing money for the transition to personal accounts is going to solve the problem of the long-term solvency of Social Security doesn’t understand the size of the problem.”

After meeting with Treasury Secretary John Snow and other Social Security Trustees Dec. 8, President Bush announced he would oppose raising payroll taxes to raise additional money for Social Security. It is still unclear if the President would oppose raising the salary ceiling (currently $87,900) that caps contributions to the program. With or without personal accounts, Grassley is convinced Congress will have to consider either benefit reductions or tax increases — options Bush opposes — to ensure the long-term solvency of Social Security.

There continue to be mixed signals from the administration with regard to deficits and Social Security. On the one hand, the president seems perfectly comfortable borrowing huge sums of money to create private investment accounts in Social Security when many experts believe minor financing fixes will more than solve the problem without adding to the deficit. On the other hand, Bolten editorialized recently in the Wall Street Journal that the completed omnibus appropriations bill for FY05 made progress on the important task of controlling budget deficits by “eliminating wasteful spending.” But the amount of money Bolten implied would be saved in the omnibus bill falls far short of the amount financing private accounts would add to the deficit. And the budget cuts Bolton trumpets have left many programs woefully under funded. For example, funding for the Low-Income Home Energy Assistance Program (LIHEAP) is well below adequate levels heading into winter.

With the economy continuing to struggle through recovery, the dollar continuing its decline, job creation stagnant and incomes falling, and trade and international investment gaps growing, it is difficult to accept the administration’s assurances about Social Security and the deficit — particularly considering its priorities.

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