Goldman Sachs Group Chair Suggests Tax Measures to Stimulate Economy

[1] Thanks for dinner Monday night. Like me, I am sure you are pleased and relieved by yesterday's strong market rebound. It is too early, of course, to tell if yesterday marks a decisive shift in market sentiment.

[2] As I mentioned before dinner, I am concerned that the stock market has overreacted to the corporate scandals and that this downturn, if prolonged, has the potential to weaken the economy. If the stock market doesn't build on yesterday's rally, but continues to show weakness in the weeks ahead, it might make sense for the Administration to propose measures which would demonstrate your commitment to protecting the economic recovery.

[3] As you know, I am intrigued with the idea of moving the Bush tax cuts forward. For political reasons, it might be necessary to limit the acceleration to lower and middle rates. But this would still send a powerful signal of the Administration's commitment both to short-term stimulation of our still uncertain economy and to long- term growth.

[4] Another action that might have a positive impact on the market would be the elimination of the taxation of dividends or, perhaps, an exemption of taxes on the first $1000 of dividend income. I believe that such a step could prove especially popular among older Americans dependent on dividends for their retirement income. A reduction in taxation of dividends would also send a positive signal to investors in general; it might even make equity financing for companies more attractive.

[5] The thrust of these two ideas -- and I prefer advancing the tax-cut -- is to widen the current public debate beyond corporate misbehavior to include a focus on growth. The Administration's regulatory and law enforcement efforts are critical to restoring investor confidence. But, perhaps, so would a renewed emphasis on the robust, sustained economic growth that will ensure the long-term health of our capital markets.