February 11, 2006

February 11, 2006 | Commentary on

Republicans Are Emulating Democrats

"Which political party," a recent Washington Post/ABC News poll asked Americans, "do you think has better ideas?" By a margin of 51% to 35%, Americans chose the Democrats.

Post columnist David Broder opined "the remarkable thing about that finding … is that I think it's nearly impossible for anybody to tell you what the direction of the Democrats in Congress is." Perhaps, but that hasn't stopped leading House Democrats from trying, and leading Republicans from emulating them.

House Minority Leader Nancy Pelosi and her allies unveiled "an aggressive plan to maintain America's leadership in innovation and unleash the next generation of discovery, invention and growth." This agenda, not surprisingly, entrusts federal bureaucrats to direct billions of taxpayer dollars to carefully vetted projects designed to yield this "innovation." It is a warmed-over version of a discredited theory -- industrial policy.

The Democrats' vision begins with "a serious, sustained commitment to America's schools" that requires, yes, the hiring of more teachers. Specifically, Pelosi calls for "a qualified teacher in every math and science K-12 classroom" and something she calls a "Call to Action" to engineers and scientists to enter the teaching profession. She and her colleagues also pledge to "double federal funding for basic research and development in the physical sciences" and to create yet another entitlement -- a guarantee that "every American will have affordable access to broadband within five years." Finally, she reiterated the enduring liberal commitment to "sustainable energy alternatives," in this case bio-based fuels, and new engine technologies for flex-fuel, hybrid and bio-diesel vehicles.

On cue, Sens. Harry Reid (Nev.) and Hillary Clinton (N.Y.), proposed the creation of a new agency to oversee this research, a $9 billion bureaucracy to lead a crash research and development effort modeled on the space program "to rapidly transform our country's energy use." Not to be outdone, Tennessee Republican Lamar Alexander and 58 of his colleagues introduced the "Protecting America's Competitive Edge Through Energy Act," a similar attempt to throw billions at federal scientific research and math and science education.

In his State of the Union address, President Bush jolted his supporters when he, too, entered the government-directed investment sweepstakes.

He called for an "Advanced Energy Initiative," requiring a 22 percent boost in clean energy research in a variety of areas, including his much-ridiculed call for ways to produce ethanol from "wood chips and stalks or switch grass." Bush also called for an "American Competitiveness Initiative" which, like Pelosi, envisions a doubling of federal funding for basic research in the physical sciences. Echoing the San Francisco Democrat yet again, the President proposed a new program to train 70,000 math and science teachers and bring 30,000 math and science professionals into the classroom.

Happily, the American Shareholders Association (ASA) released a timely report that reminds us why lawmakers should jettison this outdated approach and simply trust the collective wisdom of millions of American investors.

ASA economists used data from the Congressional Budget Office (CBO) to review the trend in revenue collected from capital gains realizations since Congress lowered the top rate from 20 percent to 15 percent in 2003.

When the top tax rate fell, CBO predicted that receipts from capital gains realizations would be $45 billion in 2003, $44 billion in 2004, $49 billion in 2005 and an estimated $54 billion this year. But, because the lower top rate made it easier for investors to move their capital to the most efficient and highest-yielding investments, capital gains realizations and the tax receipts derived from them soared.

Actual capital gains receipts surged well beyond the official projections, to $50 billion in 2003 ($5 billion above the official forecast), to $60 billion in 2004 (a $24 billion windfall), and to $75 billion in 2005, a full $26 billion ahead of expectations. That's a $55 billion mistake. And, in a subtle admission of its error, CBO's projection for capital gains tax receipts in 2006 is now $27 billion higher than it was just two years ago.

Other pro-growth elements of the 2003 Bush tax cuts have also exceeded expectations. Since those cuts took effect, non-residential investment has soared at an average quarterly rate of over 8.5 percent. The ASA study attributes some of that increase to a provision of the 2003 Bush tax cuts that allowed businesses to depreciate investments in plant and equipment more quickly.

Relying on Washington bureaucrats to identify and underwrite the next great wave of scientific breakthroughs is a mistake. Lawmakers should instead trust the collective wisdom of millions of American investors.

Michael Franc who has held a number of positions on Capitol Hill, is vice president of Government Relations.

About the Author

Michael Franc Distinguished Fellow
Government Studies

First appeared in Human Events