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November 5th was a very good day for President Bush. He seems to have single-handedly restored the Republican Party to power.  America is watching and waiting, what now?  The White House is committed to two issues: homeland security and the economy.  The President moved quickly to deliver on homeland security. The House approved the bill on November 13th and the Senate’s approval came on November 19th.  The economic stimulus package is next. What does that include? Tax reform, energy legislation, social security reform, prescription drug legislation, and lawsuit limitations are all on the President’s Christmas list, but tax reform is at the top of the list. This is one of the central ways that Bush can use to stimulate spending and, thus, demand. As long as there is demand, then businesses are provided with the incentives to get back into the business of growing and investing in the future.

The most important aspect of Bush's economic agenda will be tax reform. With the economy hitting what Chairman Greenspan described to the Joint Economic Committee on November 13th as a “soft patch,” tax cuts are on the horizon.  The Bush family has a lot of history with two things, Saddam Hussein and taxes; both of which it would like to forget. A good son learns from his father’s mistakes.  George W. Bush is an exceptionally good son.  In the simplest terms, Bush is arguing that the more taxes are cut, the more jobs are created and the more the economy grows. Improving capital spending is the end game -- the consumer can’t keep this economy going forever and we have already seen the insatiable consumer start to wane. The economy’s 3.1 percent growth in the 3rd quarter will be unsustainable moving forward without businesses jumping back in the game. Instead of “it’s the economy, stupid,” Bush will say to the Democratic Party, “It’s the taxes, stupid.”  The Democrats are already eager to participate.

We will likely see the realization of Bush’s goal of making his 2001 tax cuts permanent and enacting new tax rollbacks.  Bush is even expected to push, in the long-term, for a sweeping overhaul of the US tax code.

Indeed, there is constant noise that tax cuts may not be effective -- including whether the tax cuts enacted in 2001 have had much positive impact on the economy. However, Federal Reserve Chairman Alan Greenspan, in his testimony to the Joint Economic Committee, said the 2001 "tax cuts and extended unemployment insurance provided a timely boost to disposable income" for consumers. He said repealing those tax cuts might hurt markets, but that further tax breaks may not be needed as a short-term stimulus.

So what are the marquis tax reforms that we should expect to see pushed through in the coming months? Bush has not specifically spelled out the exact priority of the tax cuts he will seek, but the following summarizes the most important reforms on the table:

• Make permanent the 2001 income-tax cut and estate-tax repeal, which are scheduled to expire in 2010.

• Allow investors to deduct $10,000 of losses in their stock portfolios against ordinary income instead of $3,000.

• Additional cuts to the capital gains tax.

• Increase the child tax credit.

• Relief for married couples by increasing the standard deduction and expanding the 15 percent tax brackets for double-income couples.

• Abolish the double taxation on corporate dividends.

• Accelerate the depreciation of business assets and provide significant credits for capital spending.

• Employees could be allowed to set aside more earnings tax free in their 401(k) or IRA plans.

• Over the longer run, there is consideration for major tax-code changes such as the repeal of personal income tax, except for those with high incomes. Instead, similar to Europe today, a value added tax -- or national tax -- would replace income tax.

Alongside the war on terrorism, these combined efforts could prove to be the signature of Bush’s presidency. If these tax reforms can be pushed through, it should lift stock market prices, perk up the moods of consumers and businesses, and encourage capital spending -- something that all 12 rate cuts have failed to spark. In fact, if the tax cuts can really be executed and implemented quickly and with enough breadth, they should stimulate the economy sufficiently that the hit to government revenues will be smaller than anticipated.

Companies are keeping their purse strings closed for a number of reasons, but a key one, according to John Loski, Chief Economist at Moody’s Investor Services, is the bear market and free-fall of stock prices. CEO’s are very cautious as every time they have seen a glimmer of light, the stock market has turned on them, their stock price drops, and the threat of shareholder scrutiny that would ensue from spending money keeps them holding on tightly to their wallets. In the words of Loski, “The stock slump is putting corporate management on the defensive.” Thus, the focus is on cost cutting, slashing budgets and fixing battered balance sheets. Any sustained stock market rally—which tax reforms can spark—will lift the dour mood and the inclination and tendency towards cutting back. With a stock price that pleases shareholders, capital spending will return and that will be the key component of a healthy and robust economy.

But tax reform is not without political risk. The American public is divided and ambivalent on the issue—there is so much miss-information that winning the public’s support may be a challenge unless real results emerge. It is true that further tax cuts could risk the inflating of the federal deficit to an economically and politically harmful height. Four years of surpluses in the federal budget have been wiped out by a combination of Bush’s $1.35 trillion 2001 tax cut last year, the economic downturn, the stock-market bubble bursting, and increased spending. Yet tax cuts clearly have political momentum, given Bush's election gains and a rekindling of the supply-side economic views of Ronald Reagan from the 1980s. Deficits are no longer viewed as a killer of low interest rates.

If tax cuts are now likely, rising deficits appear even more certain. In fiscal 2002, which ended Sept. 30th, the deficit reached $159 billion. This year, it could move up to $200 billion and higher depending on the extent and scope of the cost of a war with Iraq -- and any subsequent occupation. Additionally, spending is on the rise in every corner of our economy from homeland defense to healthcare.

At the moment, the deficit stands at about 1.5 percent of the nation's output of goods and services. That's a level that most economists regard as reasonable and sustainable for years. But Greenspan has recently warned that returning to “continuous large deficits would risk returning to an era of high interest rates, [low] investment, and slower growth in productivity." Liberal economists say Republican-style tax cuts unwisely feed most of their benefits to the already well-to-do. Many would rather use federal dollars to shore up Social Security.

The question is, will tax reform energize the U.S. economy?  Of course time will tell, but there is one indisputable truth, money is oxygen to the U.S. economy.  With decreasing consumer and capital spending, shrinking portfolios and increasing layoffs, it seems obvious; our nation is “out of breath.” The Republicans have the ball in their court and now that we have a Republican White House, Senate and House, the spot light is on the GOP.  President Bush must resuscitate this economy or the blame game will begin.  He knows all too well, a 70 percent plus approval rating can evaporate over night and make a famously popular “war time president,” a one-term wonder.

Hilary Kramer serves as a business news contributor at Fox News Channel. She joined the network as a regular guest on Cashin' In in May 2001. Currently, Kramer is the senior strategist and adviser at Montgomery Asset Management.