Talk Of Economic Stimulus, Especially Capital Gains Cuts, Now More Muted

My office in Washington D.C. overlooks the Washington Monument, the Jefferson Memorial, and the Pentagon. Over the last 15 years, I have spent many an hour talking on the telephone, looking out the window and watching airplanes fly over these symbols of our countrys history and power on their way in and out of Reagan National Airport.

It is a beautiful vista, but one I have largely taken for granted. I no longer do so. Since the terrible events of September 11, when I saw flames and dense black smoke rising from the Pentagon, the view has become dramatically altered.

Most obviously, airplanes have not been flying in and out of National Airport. The only aircraft to be seen from my window is an occasional F15 flying in a tight circle over the White House and the Capitol Building.

Quieter, but equally visible, are the large number of security vehicles and personnel guarding the perimeter of the White House. And, in silent reminder of that day, the Pentagon still stands in the distance, smoke no longer rising, but with a huge gash in its side.

The view from my office has changed in more subtle ways, also, as the capitals agenda has shifted. Some of these shifts are pertinent to writers of annuity products.

Before September 11, the Congress and the President were almost exclusively focused on domestic issues. Dominating the discussion: A Medicare prescription drug benefit, education reform, Social Security restructuring, the vanishing surplus, and whether the Social Security surplus would be violated.

This discussion was highly partisan, the Washington blame game being fully underway. Both parties scrambled to assume optimal positions for the 2002 Congressional elections–the Democrats blaming the President and his party for spending the surplus on tax cuts, and the Republicans explaining the budget and Social Security would be fine, if only Democrats would follow their lead.

Since September 11, however, Congress and President Bush have focused on combatting the evil that confronted us on that day. They correctly understood that, at this time, their first priority is defending our country from further attacks and taking steps to bring justice to those responsible for the September 11 attacks.

As a result, the issues that were debated so hotly and bitterly just a few weeks ago are largely off the agenda. The Social Security surplus has been accessed to assist those harmed by the attacks, with willing cooperation from both parties. The Social Security Commission has decided to defer the release of its report (expected to endorse privatization of at least a part of Social Security) until the spring.

It seems likely that Congress will concentrate its energies until adjournment later this fall on legislation related to terrorism and a few domestic matters on which bipartisan consensus can be achieved.

Thus, we may see education reform legislation before adjournment.

What about an economic stimulus package? Before September 11, there was considerable debate in Washington and on Wall Street as to the need for further tax cuts, and talk of further capital gains reductions was increasing. Now, the economy has clearly slipped nearer to, if not into, recession. However, the discussion of a further stimulus package and of capital gains cuts in particular has become more muted.

Some are suggesting that a capital gains reduction for a short period might stimulate the economy. Others counter that considerable stimulus has already been injected into the economy and that further tax cuts would lead to budget deficits and possibly inflation.

Given the present need for national unity, I expect that no decisions will be made on a stimulus package unless and until a bipartisan accord on the contents of such a package emerges.

This could happen in the next few weeks. Perhaps by that time, the planes will be flying down the Potomac once again.

In the interim, I intend to spend time talking on the telephone and taking in the view of the Washington Monument and the Pentagon, but with a new appreciation for what they represent.

Joseph F. McKeever III, a partner with the Washington, D.C. law firm of Davis & Harman, is counsel of the Committee of Annuity Insurers, a coalition of 44 life insurance companies.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 8, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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