Scrubbing bubbles

Bush 41, occupied with Iraq War I in 1991, paid little attention to the economy and then made tepid, short-term moves. Bush 43, while pointing to Iraq War II in 2003, announced on Jan. 7 a plan likely to reduce Washington's tendency to double-grab income and Wall Street's recent tendency to imitate a Power Ball lottery.

The biggest part of the president's plan is an end to the double taxation of corporate dividends. Now, companies are taxed on their profits, and when they pass on some of those profits to investors in the form of dividends those individuals are taxed on that income once again. This means the federal government can grab over half of each dollar in profit that a company makes available to its shareholders.

Liberals who want to maintain the era of big government love the status quo, of course. But we should keep in mind not only the Washington consequences-a big piggy bank to be raided frequently for politically trendy causes-but the effect on Wall Street.

When corporations emphasize paying dividends to stockholders, they actually have to be making money. Frank Sullivan, a chemical company CEO, told The New York Times, "Dividends are one of the easiest ways to gauge the quality of a company's earnings. You need real cash to pay dividends. You can't pay them with Tyco or Enron accounting."

In recent years, though, the emphasis on capital gains has meant that companies with hyped prospects soar and human greed creates stock-market bubbles. Some people start betting instead of investing, hoping to strike a spike and then sell quickly. Few market-timers are successful for long, and many soon start bitterly complaining about economic paradises lost.

President Bush is displaying the old-school sense that investment is good and speculation isn't. He's also boldly old school in proposing a plan that will help in the long run and not merely provide short-term hype for markets and reelection campaigns. But he's Reaganesque in realizing that an effective way to fight bloated federal programs is to run a small (given the size of our economy) deficit. Keeping in mind congressional greed, any surplus Washington has will quickly be spent, and probably misspent.

To oversimplify for purposes of brevity, the job of Congress is to provide for the common defense, promote the general welfare by encouraging voluntarism, and go home. The job of Wall Street is to be an efficient way to broker capital to well-run companies and restrict it to those that are, to use a Texas expression, all hat and no cattle. Sadly, the job of liberals this month seems to be to fight the Bush plan by emphasizing class warfare-again. But what reins in both government and stock-market gambling is good for everyone.