Bush Administration Economic Policy

3:10 P.M. EST

      MR. LINDSEY: Thank you very much.

     As you know, the president sent to Capitol Hill his tax reform proposal last week. It's important to keep in mind that that proposal has been unchanged since he first proposed it in December 1st 1999. The president stood behind his tax proposal during the primary season, he stood behind his tax proposal during the general election season, and that proposal remains intact.

     The reason for that consistency is that the president believes that it's the right thing to do. He spent more than six months during 1999 working with me and other economists to craft the plan. He asked us to propose ideas that solve the biggest problems in the U.S. tax code, and we think we identified those. So the president firmly believes it's the right thing to do. He added, back on December 1st 1999, that there was a possibility that the U.S. economy might need an insurance policy. And aside from, therefore, proposing things that were the right thing to do, he left the option open that we might need some acceleration of the tax cut. As you know, members of Congress have suggested that, and the president has indicated that he'd be happy to work with members of Congress in that regard. That's where we stand on taxes.

     Next week, the president will be submitting his entire budget. That budget will fulfill all of the campaign commitments he made with regard to new initiatives. It will allow the government to pay down an unprecedented amount of our national debt, and it will provide room for Social Security, for growth in Medicare, for growth in other spending, as well as the tax cut proposal he sent last week.

     So we look very much forward to the Congress' speedy enaction of the president's tax reform proposal and the rest of his budget proposals.

     And on that note, I'd be very happy to take your questions.

     Sir?

     MODERATOR: If I could just say something before we start the questions. I think since we have a limited amount of time today, if you could confine your questions to the U.S. economy and to tax policy, we'd get a lot further and get a lot more out of the session.

     Sir?

     Q (Name and affiliation off mike) -- CNN Spanish. On the tax proposal, I'm interested in knowing your reaction to the opposition of several billionaires, like Bill Gates, Soros and others, to repealing the inheritance tax.

     MR. LINDSEY: Sure.

     Q And I have a brief other question regarding if you could explain if the government is prepared to submit fast-track legislation before the Summit of the Americas in Quebec.

     MR. LINDSEY: The -- individuals are free to take any position that they want on any part of the tax cut proposal. The concern we have with the tax cut, with the inheritance tax, the death tax, is twofold. Actually, make it threefold. First is that it is a major impediment to capital formation in America. We are a country that last year borrowed $400 billion to keep our expansion going, to fund our expansion. We need to harness every domestic source of capital we possibly can. And there is a large economic literature out there suggesting that our death tax stands in the way of capital formation.

     The second observation that I would make regarding the death tax is that it is a multiple tax, meaning people paid taxes on that money when they earned it, they paid taxes again on the interest accumulated when they saved it; now, for the government to come around for a third dip at taxing the same money seems to most people unfair. And that would be a second reason to get rid of the death tax.

     The third observation I make, and directly to the point to those individuals involved, you know, there is nothing prohibiting -- their main concern is that their children will grow up rich. You know, there is no law requiring that they pass the money on to their children. They are free to contribute it to the government.

     What I found odd was that they are insisting that everyone else do the way they want to. If they're concerned about their children being spoiled -- and I'm not in that position to know exactly where their thinking is -- they're of course free to donate that money to charity, or to the government.

     Q And the other question, please.

     MR. LINDSEY: I don't have an answer for you on the other question.

     Q Andrei Sitov from Tass. This is an international journalistic audience and I guess I will ask a question on international issues.

     Is it true that the international economic policy-making will be moved more to the White House with the establishment of this new position that will be responsible both to you and to Condi Rice? And specifically for Russia, do you see a scenario in the future -- a new program for Russia, like debt relief might be possible? Thank you.

     MR. LINDSEY: I'd be very happy to answer the first part of that question that has to do with the organization of the White House.

     We were very concerned with problems that emerged in the past between an NSC process -- National Security Council process which took foreign policy as its primary objective, and an NEC process -- National Economic Council process that took economic concerns as a process that often tended to be two parallel processes coming to two different conclusions that were not synthesized. And the president felt, in reviewing how this has worked in the past, that the best thing to do was to have an international economic decision-making process that included both the NSC and the NEC. Condi Rice and I have worked together very well on the campaign, and have ever since, and we felt that coordinating would be the best way of handling it in the future as well.

     Yes, sir.

     Q Mark Shohan (ph), NRC Handelsblad, Netherlands. How much Keynes flowed into the plan since, say, Christmas?

     MR. LINDSEY: (Laughs.) Well, again, the president said in December 1, 1999 that the country may need an insurance policy. And if that's what you're implying about Keynes flowing into the plan, there's nothing new. The plan has always stood by as a plan which made reforms that were necessary to the U.S. tax code, but which also could act as a fiscal stimulus.

     And so I don't think there's anything new since December, except maybe economic circumstances have changed a bit.

     Q During the campaign, he didn't mention that very often.

     MR. LINDSEY: Oh, he sure did. It was in every single speech. The insurance policy phrase was in every speech.

     Q Peter Radics, the Hungarian Radio. To the debate on recession, Mr. Bush -- the president and Vice President Cheney mentioned their opinion about the possibility of a problem, the problem, recession. What is your comment?

     And secondly, how do you judge the situation of the American dollar vis-a-vis the euro? Are you satisfied with the situation or do you wish a stronger or weaker dollar?

     Thank you.

     MR. LINDSEY: Regarding the domestic economy, we are monitoring economic developments real time. You know, there's a large lag between the economy and the data, and so we have made sure that the president is getting constant briefs from people who are out there in the real economy on how they see things. You might recall that we had a meeting in Austin, before he was sworn in, in which we had businessmen come down and describe how they saw things. We've continued that process since he was president.

     We don't know exactly what the formal -- whether or not we'll meet formal definitions of a recession or not, but it is certainly clear that the economy has decelerated very sharply and we have to monitor that very closely. I think no matter what the technical definitions may be, that it's quite clear that the sooner the Congress enacts the president's tax proposal, the better off for the national economy.

     Q On the dollar?

     MR. LINDSEY: The position is very clear, you know, we think that the dollar is -- we believe in a strong dollar, and we believe we're pursuing domestic economic policies that enhance that.

     Q Dr. Lindsey, if I may ask you about the latest U.S. economic statistics reported by the Commerce Department this morning.

     The U.S. trade deficit for last year hit another all-time high, and the deficit with Japan also hit a new record. How worried are you about these developments from the viewpoint of U.S. domestic economy? Do you think it necessary and possible for the United States and Japan to work out some sort of cooperative arrangement to rectify these external imbalances under your new policy of mutual cooperation and respect?

     MR. LINDSEY: Well, I think that, again, the U.S. and Japan work very closely together. We are the two biggest economies on the planet, and I think close cooperation between us is essential. I don't think there is any alternative.

     Q This is Suzal, from Turkish ATV. U.S. is the best or the very strongest and oldest ally. Turkey has economic problem in the last three months. The second crash we had yesterday. Do you have any plan to help, or do you -- did they ask you to help? In the past, they asked from the Clinton administration. Do you have any of this kind of help request from Turkey on this subject?

     MR. LINDSEY: I am not familiar with any request at this time.

     MODERATOR: What I'd like to do is take one question here and then go to New York for one question.

     Q John Wanders, the Netherlands Press Association. Dr. Lindsey, your critics accuse you and the government of talking down the economy for political purposes; more specific, the tax cut. What is your reaction to that? And as a follow-up to the earlier question, we seldom hear you talk about the prognosis of a recovery in the second part of this year.

     MR. LINDSEY: Again, what we are doing is monitoring real-time economic developments as best we can. I've never thought it possible to talk economies up or down. I think that they're based on, you know, decisions of millions of people, and my job is simply to provide the president the best information we can and that's why we have had numerous briefings with people who are actively involved in the real economy. That's the only process that's going on.

     Q You're going to New York, right?

     MODERATOR: Yeah, we are going to take a question from New York now.

     Q This is -- (inaudible) -- from Brazil. The markets reacted badly Friday and today to the inflation indices. So how worried -- how concerned are you too regarding inflation? Do you think that will be a top priority again in the economic agenda?

     MR. LINDSEY: I think, looking at the data as it came out, that there were a lot of technical reasons for the numbers. They were largely energy-related. There is also a pick-up in the medical care costs. That was not unexpected. I don't think that this is at all a sign that we are headed back toward high inflation, no.

     Q This is Peter Radics, Hungarian National Television. Democratic opponents to the tax cut say that the problem is you don't set the priorities right. So there is nothing wrong with cutting the marginal rate, the highest rate, or it's certainly a good idea to give relief to the middle class, but what is missing, the advocacy for people most in need. And actually, Gene Sperling, your predecessor at the White House, said that the actual tax cut in the first, the lowest tax bracket, income bracket, is not 10 percent from 15, but for the first year, it's only 1 percent. So the problem would be, people in most need in real numbers would get the less.

     MR. LINDSEY: Well, of course he's doing his job. I would observe that a family of four making $35,000 a year would get a $1,600 tax cut under the president's proposal. That is a very substantial increase in their real disposable income. It's a bigger increase in their real disposable income than they've gotten in the last eight years combined. So I think in fact what we're talking about is a very substantial boost to middle-class families. That's where the target -- the proposal is targeted.

     Q That's for middle class, but the lowest income bracket?

     MR. LINDSEY: Well again, what the tax cut proposal is designed is to cut taxes for people who pay taxes. There are numerous other programs. If you don't pay taxes, it's very hard to get a tax cut. There are numerous other proposals in the president's budget -- for example, a health tax credit -- that are refundable, that are counted as spending items, that are targeted toward the individuals you're talking about.

     Q Hyo-Shang Khang, the Chosun Daily Newspaper in South Korea. I would like to raise a question about the U.S. and South Korean economic relations. South Korea now is involved in a massive bailout of Hyundai Electronics. Dr. Lindsey, are you concerned about that? And what is your U.S. government response about that?

     MR. LINDSEY: Again, sticking by the rules of the game, I'm going to focus on domestic economic events here.

     MODERATOR: If you could hand the mike back in that direction, please.

     Q (Name inaudible) -- National TV Slovenia. What are your prediction about oil prices? Do you see any connections between danger that oil prices go up and recent air attacks on Iraq?

     Thank you.

     MR. LINDSEY: I don't have an oil price forecast for you. Of course we're monitoring the situation very carefully. But in general, the market view seems to be that oil prices are about where they, quote, "should be," given existing supply and demand considerations.

     Q Thomas Gorguissian, Al Wafd, Egypt. Dr. Lindsey, with the merger of NSC and NAC, how do you foresee the international aid program? In recent days we heard about this is somehow related to faith and other things, faith-related organizations, which was mainly focusing on not to be used for family planning and all these related issues, as Senator Jesse Helms proposed a few weeks ago, a few months ago.

     MR. LINDSEY: I'm not familiar with Senator Helms' proposal. You raised two interesting issues, and let me see if I can explain each one.

     Again, the NAC and the NSC aren't merged. We have a segment of us that reports to both of us; the whole organizations aren't merged.

     The second question had to do with the president's faith-based initiative of the second week of his campaign -- excuse me, of his presidency. That proposal largely has to do with domestic social spending. There are many nongovernmental organizations, some of which are faith-based, some of which are not, that are quite good at providing social services, and many of them are right now providing such social services. And the president was highlighting those and was highlighting the fact that he thinks that the key should be success; that those agencies, no matter what their affiliation, that are actually able to solve people's problems are the ones who should be the recipients of government money. I think that the faith-based initiative was entirely within the realm of domestic social policy; it was not tied to international policy.

     I'm not familiar with Senator Helms' proposal.

     Q I mean, just to follow up, because it needs to be clarified. How do you foresee the international aid program?

     MR. LINDSEY: Well, the president will be addressing that in his budget, which he'll submit next week.

     Q Mr. Lindsey, I'd like to know how do you see the recession? Do you see the recession, or the economical crisis, shaped in a V-form or in a U-form, because there is a debate? Some people say that we will be for a deep but fast crisis, or a U. How is your opinion?

     MR. LINDSEY: I don't know. (Laughter.) We're still -- again, in answer to the previous gentleman's question, we're doing the best we can to gather real time economic information for the president. And that involves getting people into the White House to brief him about what's happening in the economy at the moment.

     You know, there's a lag between data and when the activity actually happens, and we're trying to get over that lag. You're asking us to make a step further; we're just trying to look at what's happening now not in the past, and you want us to go in the future. That's not something that we're able to do quite yet.

     MODERATOR: This gentleman in back.

     Q I'm Jing Chin Lee (sp) from China Economic Daily. How serious do you think the trade deficit is -- actually, the economic situation as a whole, and what kind of measures is the administration going to take to correct the situation?

     MR. LINDSEY: Well, remember that the trade situation is the flip side of the capital inflow. And, you know, the U.S. during -- today and also in the recent past was the best place in the planet to put one's money. And that's why money flowed here. The laws of national income accounting say that whatever the capital inflow is is equal to the current account deficit. So I think the two are related. And, again, we're great believers in free trade and we're also great believers in the free mobility of capital. And we continue to be.

     MODERATOR: We'll take a question here and then go to New York for another one.

     Q Edward Alden (sp), Financial Times. The Bush administration has proposed fairly substantial cuts to the trade promotion agencies of the government, particularly the Export-Import Bank. Could you tell me what the thinking is behind that?

     MR. LINDSEY: Well you must be extraordinarily well-informed because the budget won't be out until next week. (Scattered laughter.)

     New York?

     MODERATOR: From New York.

     MR. LINDSEY: Or ill-informed -- well- or ill-informed, I don't know which.

     Q Hello. I'm Cindy Kaufman (sp) with the French newspaper, Le Monde. You just said that you believe in a strong dollar. But the Treasury secretary, Paul O'Neill, said last week in an interview with -- (inaudible) -- that the U.S. -- (inaudible) -- policy of a strong dollar, contrary to what is being said. So who are we supposed to believe?

     MR. LINDSEY: I missed the question.

     MODERATOR: There's a contradiction between --

     MR. LINDSEY: Oh, I don't think there's any contradiction. The Treasury secretary said that he believes in the strong dollar. I also think he said something about that if he was going to change that position, he would rent Yankee Stadium to announce it. And, to my knowledge, he has not rented Yankee Stadium. (Laughter.)

     So we are all -- we are all supporters of a strong dollar.

     MODERATOR: This gentleman, then please pass the mike back up to the front.

     Q Hi. My name is (Chul Jae-Chol ?), Seoul Daily News from South Korea. A few days ago there were some interesting reports about the U.S. economic growth rates. The late three-months economic rates of last year has been stopped because of too much warning from the -- especially from the government sector, including the FRB. I don't expect you will comment on Mr. Greenspan, but I think there is too much warning from politician sectors about the economics during the time of the government transition period. What do you think about that?

     MR. LINDSEY: Gee, I'm not sure I understand. Again, all we have been doing is having people -- businessmen, consumer people -- come down and brief the president on how they see things actually happening in their business. That's all that we have been doing for the last two or three months.

     Q Dr. Lindsey, my name is Chris (Nessol ?) with the German Business Daily Handelsblatt. You said that the tax cut is meant to be an insurance policy for the U.S. economy. Now, if you look at the latest consumer confidence index that took another dive, does that mean that U.S., the citizens, don't believe in the tax cut and what it can do?

     MR. LINDSEY: Well, I think what we want to have happen is we want to have them passed as soon as possible so people get money in their pockets. We're not like a parliamentary system where you'd simply announce it and it becomes law. It does take a congressional act and, as you know, there is a substantial amount of debate about it.

     I think that consumers are responding to economic conditions that they are seeing and the role of the tax cut is to provide them with extra income in order to boost their confidence, and we hope Congress will enact it as soon as possible.

     MODERATOR: This lady here.

     Q Thank you. It's Susan Dalmo (sp), International Herald Tribune Television in Rye. Do you have any concerns, Dr. Lindsey, about the technology sector? The Nasdaq's had a very hard time; in the most general sense, corporate earnings continued to fall all week. And are you worried about this?

     MR. LINDSEY: Well, the other gentleman thought I was talking them down, you see? So --

     Q But you said you weren't. (Laughter.)

     MR. LINDSEY: But I'm not. No, I think, you know, this is part of a business cycle and, you know, again, my job is to present the facts to the president as best I can, and that's what I'm trying to do.

     MODERATOR: The gentlemen in the yellow sport jacket.

     Q Hi. My name is Hiro Nakagawa of Jiji Press, Japanese news wire. OMB and CBO has expected the United States will have a huge amount of budget surplus for the coming next 10 years. And you are going to file your budget plan to the Congress soon. Is your budget plan, it's going to be expansionary to stimulate the economy, or take a rather cautious approach?

     MR. LINDSEY: Well, the president is going to submit a budget that fulfills all of his promises from the campaign. First of all, he's laid out certain priorities, especially education, that he thinks should have increased funding. Second, he believes in paying down the debt, and in fact, we'll be paying down a record amount of national debt. He's going to propose his tax cut, and protecting Social Security and Medicare. Those are the cornerstones of the president's budget.

     Q I am Akio Fujii from Nikkei newspaper. Many private economists say U.S. long structural problem is the negative savings in household sector. And if this Bush tax cut is introduced, are there any risks of accelerating consumer spending? It may be better in the short term, but will this be a long-term risk for the U.S. structural problem?

     MR. LINDSEY: Well, I think, again, the tax cut was designed to identify the biggest problems with the tax code and how it interfered with social and economic progress in the U.S. A number of the problems we identified were obstacles to labor supply and to families. Some of the others were obstacles to capital formation, particularly the death tax and the very high top rate, which is the rate that the unincorporated business sector pays, and we recommended reducing that rate, and we recommended getting rid of the death tax.

     So I think, again, the tax cut is well balanced to address problems in both the capital market and the labor market.

     MODERATOR: The gentleman by the camera in the back.

     Q Yeah, hi. I'm Brian Knowlton with the International Herald Tribune. I was wondering if you could tell us a little bit about the Bush administration's intentions to expand free trade agreements in this hemisphere, and what that means in terms of future global free trade negotiations.

     MR. LINDSEY: Yeah, I'm going to stick to my -- the rules, which would be to talk about the domestic economy.

     MODERATOR: I'd like to call on this gentleman in the necktie, behind the camera there. He's had his hand up for quite a while.

     Q (Off mike.)

     MODERATOR: Yeah. The gentleman in the golden jacket.

     Q Thank you. Peter Hodge (sp) is my name, from the Australian Financial Review. Does the administration intend to implement any of the recommendations of the Meltzer commission regarding the roles of the IMF and World Bank?

     MR. LINDSEY: Well, I think, as the president said in the campaign, that there were -- you know, the Meltzer commission should be commended for a very good look. I think that it was a very thoughtful piece. I think some of their thoughts have actually been already internalized by the international bodies you're talking about. And as far as further steps, we haven't made any decisions yet.

     MODERATOR: The gentleman in the back.

     Q (Name inaudible) -- with America Economia (sp). The last few years, you have been remarking in different fora about the U.S. government had been overboard in the policy against money laundering, somehow invading privacy and creating civil rights problems. I wonder what will be your advice to Mr. Bush on these policies. How do you think you can find the balance in this fight?

     MR. LINDSEY: Well, I think the key is going to be to find the balance, and that's where my advice would be focused, to try and find a balance between privacy and the need to crack down on international criminals.

     Q Does that mean cutting back on this policy of the last few years?

     MR. LINDSEY: It means to find a balance. I think that's the key.

     MODERATOR: this gentlemen?

     Q Ulav Gazelman (sp) -- (inaudible) -- business weekly. Mr. Lindsey, the administration is saying it is going to stick to this $1.6 trillion tax cut, and at the same time is saying it might be implemented earlier. So, if it's implemented earlier, it's going to be more expensive, or you have to change the details of the tax plan, because you can't have it both ways. So what is going to happen?

     MR. LINDSEY: What the president has said is that he wants to see his tax plan enacted, the programs that he ran on. Okay? As scored, they come up to $1.6 trillion. But what he wants to see is his program in enacted. He is also willing to work with the Congress to accelerate portions of the tax cut. They were recommending that, and he is willing to work with them on that point.

     Q Hiroshi -- (inaudible) -- Nikkei Newspapers. According to the communique of G-7 last week, the big problem for the world economy is the U.S. economy and Japanese economy. But G-7 countries are optimistic for U.S. economy because there is much room for easening monetary policy and tax cut plan. But different countries are a little bit pessimistic for Japanese economy. So my question is, if Japanese economy slows down much more, what kind of influence would it have to the U.S. economy?

     MR. LINDSEY: Hmm. Well, again, I think that, you know, we would be concerned. We, of course, want the Japanese economy and other economies of the world to grow. I think the actual links are -- direct links are relatively small. We have an export sector that is about 12 percent or so of GDP, and roughly a quarter of that is with the Pacific. Roughly half of that quarter is with Japan. So we're talking about a very -- relatively small total share of our GDP. That's not to say that it's not important, but again, the direct impacts, quantifiable impacts, I think, are containable. Long term, the way the planet has grown, the economy of the planet has grown, is for all parts of that -- all economies to expand and for trade among them to grow. And so that would be our goal. But as far as the direct, quantifiable impacts, in the short run I think they would be relatively small.

     Q Mr. Lindsey?

     MR. LINDSEY: Yes?

     Q Dr. Lindsey, my name is Hyondo Sun (ph) with Maeil Business Newspaper in South Korea. In your recent book, in The Economy Puppetmasters, you describe Mr. Alan Greenspan as contrarian. Do you still want him to be a contrarian in Bush administration?

     MR. LINDSEY: Well, I think Greenspan has done a fabulous job and will continue to do one. Again, the role of the Fed is to lean against the wind, and I think they're doing a good job of it.

     Q Mr. Lindsey, Jacobo Goldstein, CNN's Radio Noticias. I'm a few minutes late; the question may have been asked. But Latin America are very interested on the fast track and Latin American Free Trade Area with the United States. How fast is the Bush administration going to move on this? And how about Chile?

     I know that Chile is very interested in a free trade agreement with the United States.

     MR. LINDSEY: I understand, and as I -- you may have missed the original opening. The rules of the game are, I'm going to concentrate on domestic economic issues.

     MODERATOR: This gentleman over here. Press Trust of India.

     Q Parasuram of the Press Trust of India. What impact will the slowdown of the U.S. economy have on the flow of capital to developing countries?

     MR. LINDSEY: Well, again, I think we're going to have to watch and monitor that very carefully. You know, we're -- what you're asking is for us -- as we move forward, what's going to happen, and you know, I think most observers were very surprised at what's happened so far. And we may have more surprises ahead of us.

     Again, my job is to get the best information I can to the president, in a timely fashion. And in a very fast-changing economic environment, that's quite a challenge.

     MODERATOR: We'll take a question in back, and then I'll go to New York for another question.

     Q Dr. Lindsey, Simon Kennedy, Bridge News. Your answer on one of the questions regarding the tax plan, in which you said the president would work with Congress and on the total cost, 1.6 trillion, it doesn't seem is quite as straight as Paul O'Neill, who has indicated that as far as the president is concerned, 1.6 trillion is it, and that if he -- if it's above that, Paul O'Neill has said he'll have failed, and there will be another Treasury secretary in the position. Can you confirm the government's line -- the administration's line is to hold it at 1.6 (trillion), or is there a risk that Paul O'Neill will face failure?

     MR. LINDSEY: The president thinks that his proposal's the best proposal. The president thinks that his proposal's the best proposal. He'd like to see it enacted. It costs 1.6 trillion, but he understands the need to accelerate portions of it.

     Q So it could be higher than 1.6 (trillion)?

     MR. LINDSEY: Look, you know, we have a -- the way things work in the U.S. is different than the way they work in Australia or any other parliamentary country. The president proposes. Congress disposes. It has been likened to making sausage. The president delivers the meat and the spices, and Congress grinds away. It's better not to watch the sausage-making process, but -- especially if you want to eat it at the end. But we hope that the final product is tasty and will contain largely what the president has called for.

     MODERATOR: We'll go to New York now.

     Q My name is Jimmy -- (inaudible) -- Daily. And my question is, in the past days, IT, means information technology, industry has contributed to the one-third increase to the American economy, especially the new economy. As an economist -- (inaudible) -- do you think IT industry will still be the leading industry in the future? And do you think -- what kind of new measure for the government to take to promote the IT industrial leadership?

     Thank you.

     MR. LINDSEY: I think that we have a very bright future ahead of us in the IT area, as in other new technologies. I'm very confident that over the next decade that will maintain high U.S. productivity growth and rapid economic growth. So long term, I'm very optimistic.

     MODERATOR: The young lady in back.

     Q Dr. Lindsey, you said that it's up to Congress to figure out the details of the plan, but the president could veto it, if he felt it was too high. Would he do that if it were above $1.6 trillion?

     MR. LINDSEY: Let's let the sausage be made. (Laughter.)

     Q (Name inaudible) -- Sao Paulo, Brazil. This is a question about the American economy, not free trade agreements, okay? So, do think that the FTAA would be a healthier thing for the American economy than the tax cut proposed by Bush? Do you think it would be better to push for more integration?

     MR. LINDSEY: I think both would be healthy. I think that the -- if you wanted overall effect, the proposed changes in the tax cut we're making are very important. And we now have a situation where a single mom, with two kids, making $25,000, is in the effective 50 percent marginal tax bracket. All right? That's a ridiculous situation and something that's got to be ended. We have sole proprietorships that are effectively in the 44 percent federal tax bracket. That is ridiculous; it's holding back the economy. We have a marriage penalty in place. We have a death tax that most people recognize is a major impediment to capital formation.

     We are proposing very significant reforms to the U.S. tax code to make the U.S. economy work better. I think that's very important, and that's why the president is proposing those down the road. He's a great believer in solving some of these problems and reforming the tax system.

     It is also true that opening up our trade, hemispherically and globally, would also be beneficial.

     MODERATOR: This gentlemen here.

     Q My name is Nikoda (sp) with NHK, Japan Broadcasting Corporation. I have two questions about the American economy. First, why do you think American economy slows down in such a high pace?

     And the second question, some people say the American economy will recover in half a year because of the measured interest rate cut by FRB. Why do you think that's not enough to support the American economy?

     MR. LINDSEY: Well, on the first question as to why it slowed down so quickly, I look forward to some outstanding doctoral dissertations that'll be written in around 2006 that will tell me the answer to that question. (Chuckles.) And those will be better informed than I could give you. Of all the theories that are abounding, I think the one that seems the most plausible is that because of the revolution in IT, we've been keeping inventories a lot leaner, which means the inventories which traditionally have acted as a buffer aren't there, which means that when sales are cut back, the entire production process is cut back all the way back to the original source.

     I don't know the answer to your question. If I were to make a list of what is plausible, that seems to me to be the most plausible explanation. But again, we won't know for sure for many years.

     Q How about the second question? Why do you think monetary policy is not enough to support the economy?

     MR. LINDSEY: Oh, I think that, as Chairman Greenspan said, we need both. Monetary policy and fiscal policy work through different channels in the economy. Monetary policy tends to affect the balance sheet, whereas tax policy tends to affect the income statement, and I think we need to have both.

     MODERATOR: Last question.

     Q This is Hasan Hazar, Turkiye Daily. There are many big job cuts in all sectors, so what is the president's plan to recover it? And how can you deal with this problem?

     MR. LINDSEY: Well, again, I think that I wasn't talking down those job cuts, either. These are things that are happening. They're in the news. And, you know, we're very concerned about them. We think that the best thing to do is to pass the president's tax cut as quickly as possible to put money in people's pockets as soon as possible; that that's the best way of maintaining confidence in the economy.

     Thank you.

     MODERATOR: And thank you very much, Dr. Lindsey, and thank you to our audience here in Washington for enduring our crowded condition here and to our questioners from New York, also. Thank you.

END.

Copyright (c)2001 by Federal News Service, Inc., 620 National Press Building, Washington, DC 20045 USA. Federal News Service is a private firm not affiliated with the federal government. No portion of this transcript may be copied, sold or retransmitted without the written authority of Federal News Service, Inc. Copyright is not claimed as to any part of the original work prepared by a United States government officer or employee as a part of that person's official duties. For information on subscribing to the FNS Internet Service, please email Jack Graeme at info@fnsg.com or call (202)824-0520.