State, national GOP look for ways to stimulate economy
| • | Highlights of local business leaders' reactions to the election of Linda Lingle |
| • | Highlights of Lingle's ideas |
Advertiser Staff and News Services
With the first Republican governor elected in Hawai'i in four decades last week, the local business community has high expectations for quick and significant change.
Linda Lingle has promised not only to bring a cooperative, business-friendly attitude, but also sweep away many of the regulations that businesses have labeled unnecessary interference.
From tourism to technology, agriculture to healthcare, small business to gas companies, industries statewide are waiting to see what comes next for the future of Hawai'i's businesses and economy.
Meanwhile, national elections also have changed the face of the potential economic future on the Mainland — and any ripple effects that could wash ashore in Hawai'i.
President Bush and his Republican allies are hoping their bigger numbers in Congress will lead to expanded tax breaks for individuals and businesses: The result is likely to be stronger growth next year but also soaring budget deficits that eventually could act as a drag on the economy by pushing interest rates higher.
Both Bush and Sen. Trent Lott, R-Miss., who will take over as Senate majority leader, let it be known last week that they will move ahead with economic stimulus packages to, as Bush put it, "make our economy stronger so people can find work."
Economists said there is no doubt that such an effort is needed given recent statistics that show the recovery from last year's recession is in danger of stalling out. The unemployment rate climbed to 5.7 percent last month and analysts are predicting it will top 6 percent by early next year.
"This economy is dragging along with little or no growth and the Federal Reserve is close to running out of ammunition," said Larry Chimerine, head of Radnor Consulting, an economic forecasting firm in Philadelphia.
The central bank cut interest rates by a bold half-point last week, but economists are worried that the reduction won't have much impact, given that consumer and business rates have been at the lowest levels in four decades for almost a year now and consumers have exhausted much of their pent-up demand.
The administration and Republican leaders so far have not revealed much about just what types of tax cuts or possible spending increases will be in any new stimulus measure.
Most analysts believe that Bush will concentrate on smaller tax-relief bills that have a chance of passing Congress quickly and putting money into people's pockets next year.
Among the proposals being considered are advancing reductions in income taxes that were included in Bush's $1.35 trillion, 10-year tax cut that won't take effect until 2004. Such a change could provide billions of dollars in badly needed consumer spending next year.
Congress will also be petitioned by cash-strapped state governments to provide some relief for a collective $60 billion shortfall they are facing because of the economic slowdown. States must either cut spending or raise taxes to eliminate their deficits, moves that would be harmful to an economy struggling to emerge from recession.
Republicans' top tax priority this year was to make permanent Bush's big tax cut, which now expires in 2010. Lott and Sen. Chuck Grassley, R-Iowa, who will take over as head of the Senate Finance Committee, both said last week that this remained a top goal. But economists questioned the wisdom of engaging in this battle given that Democrats remain opposed and such a change wouldn't help the economy until 2011.
It would be far better, economists said, for the White House and Congress to remain focused on providing a quick boost to the economy with increased spending to help states through their budget problems or in such areas as extending unemployment benefits for the 800,000 unemployed Americans who will exhaust their benefits at the end of the year.
In the tax-cut area, economists urged consideration of short-term tax cuts to encourage businesses to boost investment spending but only if businesses spend the money next year.
Analysts said providing such short-term stimulus would concentrate relief in 2003, when the economy will need it most, and also limit the impact on government deficits. After four years of surpluses, the government recorded a $159 billion deficit last year, and the Congressional Budget Office predicts this year's deficit will be $145 billion, an estimate that does not include any further stimulus proposals.
Economists are worried that unless Congress resists the temptation, spending increases and a bidding war on tax cuts will drive the deficit ever higher, meaning higher interest rates in coming years which will act as a drag on business investment.
"Any stimulus efforts that become permanent will lead to larger deficits down the road that will in all likelihood end up hurting the economy in the long term," said Mark Zandi, chief economist at Economy.com.
