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, Vice President Cheney, and a number of economic advisors outside the administration, 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. While little is known about Hubbard?s monetary views, he certainly would not be tolerant of rising inflation. As a pro-market economist, Hubbard would probably make ample use of financial- and commodity-market price signals to guide his monetary strategy.
According to people close to the White House, current CEA chairman Greg Mankiw will be returning to his teaching post at Harvard come January. This leaves a key slot open in the Bush economic high command. 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 three decades. His hands-on real-world experience would greatly benefit the White House staff as they tackle 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 Treasuryman John Snow will remain in his post at least through mid-2005, and maybe longer. Snow was a senior member of Jack Kemp?s tax-reform commission in the ?90s and has detailed knowledge of the subject. He 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. As a former railroad CEO, Snow would likely press for reform of the increasingly uncompetitive U.S. corporate tax code.
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.