March 26, 2001

Like Sen. Lieberman (D-CT), Larry

Like Sen. Lieberman (D-CT), Larry Kudlow wants immediate tax relief, but like me, he wants a tax rate cut.

The cash-rebate plan is primarily aimed at temporarily bolstering consumer spending. Ironically, personal-consumption expenditures are actually the strongest part of today's sagging economy. For example, in last year's fourth quarter, inflation-adjusted consumer spending increased at a 4.75% annual rate. In the current quarter, for which GDP will be reported in late April, real consumer spending could rise by 3.25%.

It is investment spending, however, in the form of diminished stock-market purchases and business-equipment expenditures, that is falling badly and pulling the economy down. In last year's fourth quarter, domestic investment spending declined at a 3.25% annual rate, and business investment in the first quarter is also likely to fall.

The problem isn't a lack of consumer spending. The returns on investment need to be better so more investment and innovation can occur. Lower tax rates provide that incentive. The demand side isn't the problem, it's the supply side.

"Rethink the Rebate"