Bush's Point Man On The Economy

Lawrence Lindsey is crafting a program to grab the middle

Even though Lawrence B. Lindsey worked for George Bush for years, the President's son, George W., didn't get to know the economist until last summer. That's when Lindsey was invited to the Texas governor's mansion in Austin to audition for the job of top economic adviser to a then-hypothetical Bush Presidential campaign. The meeting had been arranged by Indianapolis businessman Al Hubbard, a classmate of Bush at Harvard Business School who got to know Lindsey while working on Vice-President Dan Quayle's White House staff. "They hit it off right away," says Hubbard.

Indeed, Bush soon concluded that he had found the man who could draft an economic plan appealing to both Republican primary voters and the general public should he run for President in 2000. After all, the former Reagan White House economist had solid conservative credentials: His 1990 book The Growth Experiment was a staunch defense of the Reagan supply-side tax cuts.

But Lindsey, 44, was also a plain-speaking economist--more a pragmatist than an ideologue. "He has a lot of experience, he's extremely intelligent, and he can explain complex issues in terms that I can understand," Bush told BUSINESS WEEK. "I trust his judgment and share his philosophy: America must constantly look for ways to create high-paying, high-quality jobs and improve productivity through tax cuts." And Lindsey says of the man he may hitch his wagon to for a third trip to the White House: "He wants a tax code that maximizes growth and produces good jobs."

TOUGH NUT. Now, Bush, the clear front-runner for the GOP nomination, has formed his exploratory committee. And Lindsey is overseeing a seven-man task force that is preparing economic-policy options that would define the "compassionate conservatism" Bush claims to espouse--without diverging too much from conventional Republican economic policy. Although the governor won't publicly commit to specifics for another month or so, his advisers are coalescing around ideas that include an across-the-board cut in income-tax rates--but softened with targeted breaks for the less affluent, personal savings accounts for Social Security investments, and reforms that would make the tax code flatter, but not flat.

In short, Lindsey & Co. are forging what they hope will be a winning agenda. They want a program that will shatter the image created by congressional Republicans of a party of rich, heartless extremists but will provide a formula that can bring Corporate America firmly back into the fold without totally turning off the right wing. The answer? "We're trying to be as middle-of-the-road as can be," says team member J.D. Foster, head of the Tax Foundation, a think tank that favors smaller government and lower taxes.

In addition to Foster--another White House economist under Bush's father--Lindsey's team includes Stanford University Professor John B. Taylor, a respected macroeconomist who helped nudge 1996 GOP Presidential nominee Bob Dole toward a 15% tax cut, and Columbia University Business School Professor R. Glenn Hubbard, a tax expert who worked in the Treasury Dept. under President Bush. Also on board are two Reagan budget officials: Hoover Institution Senior Fellow John Cogan, whose forte is social policy, and George Mason University School of Law Professor Timothy J. Muris, an outspoken critic of government regulation of business. The final member, Timothy D. Adams, is an international economics consultant who worked for Lindsey in the Bush White House.

Like all GOP candidates for President, Bush seems ready to embrace major tax cuts and sweeping tax reform to paint a contrast to the Clinton-Gore Administration, which opposes both. But the Lindsey team's ideas don't go as far as other announced Republican candidates, such as Quayle, who is pushing a budget-busting 30% across-the-board rate slash, or unreconstructed supply-sider Steve Forbes, who would junk the tax code in favor of a 17% flat tax.

In testimony to Congress in January, Lindsey called for a temporary cut in tax rates as "insurance against a recession caused by trouble in the financial markets." But an across-the-board income-tax cut will favor the wealthy, Lindsey concedes, because the top 1% of income groups pay a third of all income taxes while the bottom half pay just 4%. To make a tax cut more balanced across income groups, Lindsey and his team are considering such ideas as proposing a bigger percentage cut for those in the 15% bracket, using part of the Social Security tax to set up personal retirement accounts, and cutting taxes they view as regressive, such as the telephone excise tax.

FIGHTING WORDS. As for tax reform, Lindsey prefers an overhaul that lowers rates and eliminates most deductions except for charitable contributions and mortgage interest. He would also retain capital-gains taxes, unlike Forbes. "Maybe it's the populist in me, but capital should be taxed," he says. "The government spends a lot of money protecting it."

Views like that might prompt GOP hard-liners to wonder whether Lindsey is a true-blue conservative, the same concern the party's Right has about George W. Bush. But the Texas governor and his economic adviser seem willing to risk those attacks. They figure that without a more centrist economic platform, they'll be losers come November, 2000.

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