Karl Rove

On May 15, Karl Rove, White House deputy chief of staff and senior adviser to President George W. Bush, spoke to AEI on the growth in the U.S. economy. Edited excerpts follow. The full text and video of this event are available here.

Our conservative movement is grateful for the intellectual leadership of the American Enterprise Institute, especially under the stewardship of Christopher DeMuth. AEI has become renowned for its scholarship, the care and precision of its work, and its influence and commitment to important ideas. No think tank in this city can match what AEI does.

This president believes the government’s role is to create an environment in which the entrepreneurial spirit flourishes and small businesses can grow, where people can dream about owning their own home and have it become a reality. The best tax cuts create incentives for people to work and businesses to produce and companies to invest.

President Bush doesn’t believe government creates wealth--that is done by American workers, farmers, and entrepreneurs. His economic policies, then, are tied to a view of human beings that understands the role of incentives in shaping behavior. There are three important elements of these policies: the tax system, trade liberalization, and budget discipline.

President Bush provided Americans with the largest tax relief in a generation. We’ve seen taxes cut on income, small businesses, dividends, and capital gains. The child credit has been doubled, the marriage penalty has been reduced, and the death tax has been put on the road to extinction.

One criticism of the tax cuts was that the vast majority of its benefits were directed toward the wealthy. If this were true, then logic tells you that the percentage of federal income taxes paid by the wealthy would be falling after the tax cuts. That is not the case. The Bush tax cuts have shifted more of the burden onto the wealthy, and those lower on the economic ladder have been relieved of a larger share of their tax burden.
 
Another critic claims that the tax cuts have played a major role in the return to deficits and debt. But tax revenues are at an all-time high, in large measure because of the economic growth the tax cuts contributed to. Just the other day the Congressional Budget Office lowered its deficit forecast for this year, predicting that the large increase in tax revenues would cut the deficit to about 2.5 percent of GDP.

A second component of the president’s economic policy is free trade. Free trade has a proven record of creating new opportunities for our entrepreneurs, expanding choices for American consumers, and raising living standards for all our families. Under the president’s free trade agenda, the United States has completed fourteen bilateral trade agreements since 2001. Our free trade partners represent 14 percent of the world’s GDP, excluding the United States from the world total, and yet they represent 52 percent of all U.S. goods exports in 2005. Clearly, it is in our interests to tear down walls to the sale of American goods and services around the globe.

The third component of the president’s economic policy is restraint of federal spending.
The president has reduced the growth of non-security discretionary spending every year he has been in office. Under this president, federal spending as a percentage of the economy is lower than that under four of the last five presidents. And the high-water mark for the budget deficit as a percentage of the GDP for this administration--3.6 percent--is significantly less than it was in the 1980s, when it ranged as high as 6 percent.

The president’s tax cuts, trade liberalization, and spending restraint helped strengthen the economy’s foundation and added fuel to our economic recovery. Not a bad record.