Now that the president has scrapped his "no new taxes" campaign pledge, the Bush administration will be looking for a theme forits economic policy. That theme is likely to be built around "growth," a concept about as controversial as mom and apple pie.
While promoting growth sounds mundane, Richard G. Darman, the director of the Office of Management and Budget, has consistently counseled Bush that few presidents have failed to be reelected in times of peace and prosperity, regardless of what other measures they have taken.
Bush advisers have concluded that a growth policy must take aim at the biggest single threat to sustained economic expansion: the federal budget deficit, which economists agree is siphoning money away from savings and investment and using it to finance current government spending. The effects of the deficits show up in the form of higher interest rates, which are needed to woo investment from overseas to make up the shortfall. But the deficits are also a steadily increasing drag on the economy.
In the past few months, the president and his men have tested the growth theme, although it makes for a mushier platform than a stark refusal to raise taxes.
"The primary economic goal of my administration is to achieve the highest possible rate of sustainable economic growth," Bush said in the Economic Report of the President in February. And on March 15, in a speech to the National Association of Manufacturers, Bush said "our administration is committed to an agenda for growth."
In that speech, Bush said his top growth priorities would be a cut in the capital gains tax, lower interest rates, increased spending on science research and better education programs.
Darman has said repeatedly that the administration would be willing to consider any revenue increases that would be consistent with growth, a cagey answer that most congressmen interpret as meaning a cut in capital gains taxes and adoption of the administration's family savings plan.
Most economists, including Michael J. Boskin, the chairman of the Council of Economic Advisers, say that a truly pro-growth policy must also tackle the budget deficit.
The annual report of the Council of Economic Advisers said, "During the 1980s, the U.S. national saving rate ... was substantially below its average over the previous three decades. A higher rate of national saving will reduce the cost of investment funds to U.S. firms. A lower cost of capital will, in turn, encourage investment, enhance productivity and spur growth. The most direct and important step that can be taken to increase U.S. national saving is to reduce the federal budget deficit."
"Bush is finally doing what he knew needed to be done all along: start paying for what we're spending," said N. Gregory Mankiw, an economics professor at Harvard University and a Council on Economic Advisers staff member during Ronald Reagan's first term.
The focus on the deficit is, to some extent, a renunciation of the 1981 Reagan tax cuts, Mankiw said. "They are saying that the huge tax cuts in '81 were a mistake and now it is time to reverse that mistake," he said.
Not everyone is pleased with that development.
James C. Miller III, one of Reagan's OMB directors, called Bush's softening on taxes "a tragic mistake." Miller said, "People are now somewhat confused about what policy is. One of the key policy issues that separated the two parties was taxes. Now the distinction will be blurred."
Other budget watchers are happier about the prospects of a deficit reduction deal that would include tax increases. "I think that the Bush economic policy is focused on growthand his advisers have concluded that higher interest rates can do more to impede growth than anything we can do in a budget summit," said Carol Cox, president of the Committee for a Responsible Federal Budget.
Cox said a growth policy based on balanced budgets doesn't have to be a policy of sacrifice and pain. She estimated that if interest rates fell by 2 percentage points, a person with a $60,000 variable rate mortgage would save $100 a month.
"Does anyone object to Christmas?" Cox said. "We should talk about why we're doing this. "It's not just to have a bunch of goose eggs on a balance sheet."