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CNN Money Morning Show


SHOW: CNN MONEY MORNING 06:00 AM Eastern Standard Time

December 14, 2001 Friday

HEADLINE: Congress Still Stalled on Stimulus Package, CNNfn

GUESTS: Dan Mitchell

BYLINE: David Haffenreffer


DAVID HAFFENREFFER, CNNfn ANCHOR, CNN MONEY MORNING: And joining us now for a look at the continuing saga of the economic stimulus package as well as U.S. tax policy is Dan Mitchell. He's a political economist at the Heritage Foundation. Dan, welcome to the program.


HAFFENREFFER: First of all we continue on a day-to-day basis here about efforts to get a stimulus package to the President. What is the latest at this point? And has this really been dragging on necessarily? Or is it just that perhaps the American public is growing a bit more impatient?

MITCHELL: Well, there's bad news and good news. The bad news is that the stimulus they're talking about is largely a collection of special interest tax breaks and old Cainzian (ph) policies that have failed in the past and will fail in the future.

The good news is that economy is like an aircraft carrier; it's probably going to turn around and head in the right direction not withstanding what Washington's going to do. Having said all that, it would be nice if they reduced marginal tax rates on small business owners, investors and entrepreneurs, the kind of people that could help the economy going.

HAFFENREFFER: All right. Tell me a little bit about the various - specifically the aspects of this plan that you think have failed in the past and will fail in the future if implemented.

MITCHELL: Well a tax rebate where you just have the government write a check to someone. That's standard Cainzian (ph) 101. It didn't work for Gerald Ford in the 1970s, it didn't work earlier this year with the 300 and $600 rebate, and now they want to repeat that in the state. They're not reducing the top marginal tax rates, which are the ones that have the greatest supply side affect on the economy. And some of the best things that they're talking about like increasing - reducing the tax burden on investment by reforming depreciation. They're only going to make that temporary.

So, we're not going to get permanent long-term benefits from that change. What I'm really keeping my fingers crossed for is that they eliminate the corporate alternative minimum tax, because that could really help American businesses compete around the world.

HAFFENREFFER: It sounds like you've got criticism for both the Democrats and the Republicans.

MITCHELL: Yes. I think Tom Daschle is playing traditional class warfare. Democrats on the Democratic part on the Democrat side. But I also think that the White House hasn't really engaged this issue and gone to the American people. The President has high popularity ratings, but that political capital doesn't do you much good unless you're actually willing to spend some of it. And I think he needs to engage people who want to take his administration down like Tom Daschle.

HAFFENREFFER: The longer this delay happens, who gets hurt more politically? Which side of the political aisle?

MITCHELL: Well frankly, it probably depends on what happens with the economy. If the economy turns around in the first quarter of next year and I don't think anybody has the ultimate answer to that, then I think the American people are going to forget about it. But if the economy's weak throughout next year, we have rising unemployment, say getting up in the range of six to seven percent, then I think there'll be a lot of finger pointing and at that point, who's the better politician?

HAFFENREFFER: All right. Federal Reserve, we got 11 cuts in the pipeline here. How much more room? Obviously we know they can take it down to zero percent. But how much more room politically does the Fed have to maneuver here?

MITCHELL: Frankly, I don't think the Fed has much room to play here. Cutting interest rates in this environment is like trying to shoot pool with a rope. It's just not going to have much affect. Investors will invest when they think they can make a profit after taxes. But if there aren't profitable opportunities out there is doesn't matter how low interest rates fall.

We've had zero percent interest rates for all intense and purposes in Japan for years, but nobody's investing. And so I think we need to look on the fiscal policy side. Reduce the burden of government, if we want to get the economy moving again.

HAFFENREFFER: Got about 30 seconds left here. You mentioned in your research here for us today that just before the end of the Clinton Administration, the Treasury had proposed a regulation that would have required U.S. banks to report interest they pay to accounts outside the United States. This regulation you said is stalled. How critical is this in order to get this through?

MITCHELL: It's actually an IRS regulation dealing with bank deposit interests paid to non-residents, aliens, who have accounts in the U.S. There are a trillion dollars of these accounts and the IRS wants to report the income to those accounts to foreign tax collectors. That money will flee out of our economy to places like Switzerland if we do that. We're talking about a stimulus bill that, at best, might add 20 to $40 billion to GDP. And yet we have the threat of this IRS regulation that could drive $500 billion out of the U.S. economy very easily.

HAFFENREFFER: Dan Mitchell, nice to see you this morning.

MITCHELL: Thank you.

HAFFENREFFER: From the Heritage Foundation joining us live from Washington, D.C.



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