Republicans leery of staying course on U.S. economy

WASHINGTON -- His tax cut cleared by Congress and the economy in recession two decades ago, President Reagan memorably urged the nation to "stay the course." Republicans paid a steep price in midterm elections, making it a course that House Speaker Dennis Hastert and Senate GOP leader Trent Lott would surely like to skip in 2002.

Instead, they're prodding President Bush to do something about the weakening economy -- quickly and unequivocally embrace a capital gains tax cut, for example -- at the same time they press him to keep a political promise to protect the Social Security surplus.

Hastert set the political context starkly at the White House last week as lawmakers returned from a monthlong break. "We're on a different schedule," he told Bush, according to one official in attendance at the session. The president, whose name won't be on any ballot until 2004, responded he was well aware of the different election timelines.

Just now taking hold

According to this participant, who spoke on condition of anonymity, Bush also said his economic plan, put into place this spring, is just now taking hold. Millions of tax rebate checks have yet to go out, and take-home pay for millions of taxpayers will rise in January next year when withholding schedules are adjusted to take next year's income tax cuts into account.

"I want the American people to know we're deeply concerned about the unemployment rates, and we intend to do something about it," the president said. So far, though, he has declined to embrace the call for more tax cuts before unveiling his budget next year.

Waiting is not on the agenda for congressional Republicans, nursing a narrow majority in the 435-member House and defending 20 of the 34 Senate seats on the ballot in 2002.

"It's important to show some leadership and not just stand on the sidelines," Lott told reporters Monday. "We've got to be looking at ways to address the problem."

Adding one more idea to a growing list, he suggested a cut in the Social Security payroll tax as well as the capital gains tax. "There are people, at the entry level, who are hit very hard by the payroll tax," he said.

On the spending side of the ledger, Lott and other Republicans favor automatic spending cuts in the event the government winds up dipping into the Social Security surplus.

Roughly balanced budget

Some economists and even a few GOP lawmakers argue that cutting taxes and cutting spending work at cross purposes at a time when the economy needs a stimulus. "You spend the money in the bad times and you save it in the good times. And the budget should be roughly balanced over a business cycle, not necessarily year by year," said David Wyss, chief economist for Standard and Poor's.

But the two steps dovetail nicely when it comes to GOP political objectives. Besides, the polling seems unequivocal. In one Democratic survey taken last month, for example, 82 percent of those polled said they would oppose tapping the Social Security surplus to boost defense spending; 65 percent said they would oppose using it for education.

There are major differences between the economic and political climate of 1982 and the current situation.

Reagan's tax cuts did not contain any immediate relief, for one thing, and the economy was in worse shape than it is now. Unemployment eventually reached 10 percent in the recession. That's roughly double the current level, and most recent figures show the economy has continued to grow, however anemically.