In December, 1992--just weeks before the first Bush Administration turned the reins of government over to the newly elected Bill Clinton--the Treasury Dept. unveiled an audacious plan for restructuring the tax code: Exempt individuals from tax on corporate dividends. One of the proposal's principal authors was a 33-year-old economist named R. Glenn Hubbard.
In January, 2003, President George W. Bush stunned the nation by making Hubbard's plan the centerpiece of his new "jobs and growth" program. The decision makes Hubbard, who has toiled in relative obscurity as head of Bush's Council of Economic Advisers, a key player in the policy firmament. And it explains why he was spared when Bush dumped other members of his economic team in December.
Almost unknown beyond the Beltway and academia, Hubbard is a low-key official with a high-octane dream: He wants to make tax reform a crucial part of the Bush agenda. Hubbard favors shifting to an income tax system that would do more to encourage savings and investment rather than consumption. Given his imprimatur on the new Bush plan, he may get his wish. According to National Association of Manufacturers President Jerry J. Jasinowski, "He has been an unusually influential CEA chairman."
A professor on leave from Columbia University, Hubbard is considered among the top tax economists of his generation. "He's one of the very best," says Brookings Institution economist William G. Gale, who disagrees with Hubbard on many policy matters.
Both critics and supporters say the secret to Hubbard's success is his ability to bring minutely detailed analysis to internal policy debates. Although he frequently clashed with both former Treasury Secretary Paul H. O'Neill and former top White House economic adviser Lawrence B. Lindsey, he won over the President with his careful number-crunching and a broad economic vision. He also has a crucial backer in Deputy Chief of Staff Joshua Bolten, who is well-regarded by Bush and White House political guru Karl Rove.
In internal tax debates, Hubbard argued that Bush needed a bolder vision than just short-term stimulus. Rather, he wanted to aim tax cuts toward long-term growth and eventual reform of the overall tax code. And one key to reform was ending double taxation of corporate profits paid in dividends. His argument: By taxing income such as dividends twice, the code discourages investment and needlessly boosts consumption. Ultimately, his goal is to eliminate tax considerations from economic decisions. That's one reason he fought against focusing the Bush plan only toward stimulating today's economy. "You want policy changes that will affect the economic recovery and long-term growth," Hubbard says. "I don't see this as fine-tuning at all."
Most mainstream economists agree with Hubbard that dividend taxes should be cut, although many would couple such a reduction with a broad drive to close corporate tax loopholes. Hubbard has generated more controversy for his views on the deficit, however. He argues that pro-growth tax cuts are the best way to balance the budget over the long run, even if that means short-term increases in red ink. And he staunchly insists that there is no direct link between rising deficits and higher interest rates, as many believe.
But critics question whether Hubbard is just providing intellectual cover for Bush's desire to slash taxes. And they worry that it will hurt his credibility as an economist. "Glenn has to get out of Washington," says University of California at Berkeley economist J. Bradford DeLong, "Even if you're political, you still have to say what you believe."
Despite his ability to sell Bush on the dividend tax cut, Hubbard's future in the Administration is cloudy. While he insists that his CEA post is "great fun," friends say he has grown tired of the job. Sources say he is interested in the No. 2 slot at Treasury, but there has been no indication that such a switch is in the offing. Still, few around Washington expect Bush to let Hubbard ride into the sunset just as the shootout over taxes gets going.
By Howard Gleckman in Washington