President Bush Outlines Right Priorities, Wrong Solutions For Jobs And Retirement, Says Economic Policy Institute President

1/30/2002

From: Nancy Coleman, Tom Kiley, or Karen Conner, 202-775-8810, all of the Economic Policy Institute; Web site: http://www.epinet.org

WASHINGTON, Jan. 30 -- The following is a statement of Jeff Faux, president, Economic Policy Institute:

During last night's State of the Union address, President Bush rightly identified two issues worthy of concern to all Americans: rising unemployment caused by the recession, and fading prospects for a secure retirement. Unfortunately, the remedies pursued by the administration and congressional Republicans would not address these problems.

In the case of unemployment, President Bush called last night for boosting the economy "by encouraging investment in factories and equipment." Yet the President's preferred plan for doing this -- namely, enacting tax cuts for rich corporations -- will do little to achieve his goal.

If businesses are to invest, they first need customers. Otherwise, they're likely to sit on the cash. Over the last two years, corporate liquid assets have been rising, so that by the third quarter of last year, they accounted for a huge 7.9 percent of corporate net worth, an all-time high. Businesses clearly see no reason to invest when customers are nowhere in sight.

If the primary aim of President Bush's so-called "economic security plan" is to create jobs, then he ought to deliver tax cuts to low-income families, better unemployment insurance benefits to those who are out of work through no fault of their own, and assistance to states that will allow them to make needed investments in health and education.

These proposals will help the people who are most in need, and who are therefore the most likely to spend any money they receive -- not hoard it. With increased spending, consumers will give businesses a renewed incentive to invest in new equipment, new factories, and new workers. Only then will President Bush get the jobs he's seeking.

In the case of retirement security, the President's repeated call for "personal retirement accounts" will not help to strengthen the Social Security program. In fact, private investment options that were outlined by the President's Social Security commission last month would leave future generations of retirees with a reduced standard of living and expose them to large financial market risks.

A far better way to address the long-term Social Security funding gap is to eliminate the arbitrary cap on earnings that are subject to the Social Security payroll tax.

------ The Economic Policy Institute is a nonprofit, nonpartisan economic think tank founded in 1986. More research and information on these issues can be found online at http://www.epinet.org.