It is a singular advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end purposed -- that is, an extension of the revenue.
--Alexander Hamilton

The neoconomists have one goal: to increase the rate at which the economy grows by changing how the nation uses its resources. It is a worthy goal, too. Following such as path could lead to a period of untold prosperity, with living standards rising faster than ever before. Or it might not. But even if the plan works, it might just lead to the collapse of the capitalist system.
-The Neoconomists: The Bush administration's other revolutionaries. (Daniel Altman, May 10, 2004, Slate)

While neoconservatives in the Bush administration remake American foreign policy, another cadre of ideologues—call them the neoconomists—is busy attempting to transform American society.

The revolution in economic policy is not being televised. There was no big speech by President Bush to mark its birth, no "Axis of Evil" catchphrase designed to capture headlines. Yet it is every bit as dramatic and risky a change.

The neoconomists have one goal: to increase the rate at which the economy grows by changing how the nation uses its resources. It is a worthy goal, too. Following such as path could lead to a period of untold prosperity, with living standards rising faster than ever before. Or it might not. But even if the plan works, it might just lead to the collapse of the capitalist system.

The nation's current economic policy came to Washington in care of R. Glenn Hubbard and Lawrence B. Lindsey, who spent roughly the first two years of the Bush administration as the chairman of the Council of Economic Advisers and chairman of the National Economic Council, respectively.

For years, both men had been ardent supporters of the notion that income from savings and wealth was taxed too much. In 1990, Lindsey wrote that "with only a very modest loss of tax revenue, the tax system can be reformed to substantially encourage the savings we need to sustain our investment in a more productive economy." A decade later, Hubbard and a co-author wrote that savings and wealth had "long and widely been acknowledged as especially impaired by taxation."

Hubbard and Lindsey saw cutting taxes on savings and wealth as a recipe for faster growth. Their plans were consistent with supply-side economics, which had dominated Republican policy for decades, since they targeted the economy's long-run potential to grow rather than short-run fine-tuning of demand. But the focus on savings was a departure from earlier conservative doctrine.

During the Reagan administration, most talk about tax cuts centered on removing disincentives to work. In the years that followed, though, academic economists began to favor a new set of theoretical models where the savings rate took a more prominent role as a determinant of economic growth. In addition, the models suggested that the pace of technological change depended on changes in the size of the capital stock, which can only grow if investors save more. The neoconomists didn't invent these models—that was the job of theorists whose work sometimes looked more like physics than economics—but they quickly grasped the implications for policy. They used the models to postulate the following chain reaction:

1. Government cuts tax rates on savings and wealth.

2. Saving by households—bank accounts, stocks, bonds, etc.—increases.

3. More money becomes available to American businesses, since they're the ones offering the bank accounts, stocks, bonds, etc.

4. Businesses spend more on machinery, software, and other capital, as well as on research and development.

5. The nation's output of goods and services grows, and technological innovation accelerates.

6. Incomes and living standards rise more quickly for several years and perhaps forever.

With George W. Bush's cooperation, the first steps have already been taken. So far, the president has signed bills eliminating the estate tax, lowering the tax rates on dividends and capital gains, and helping companies to reduce the tax they pay on their profits. In addition, by cutting rates for "ordinary" income, the Bush administration has lowered taxes on interest payments, rental income and income from mutual funds, and pensions and retirement accounts. (Though slated to be temporary, the Bush administration is campaigning to make its tax breaks permanent.) All of these changes make it relatively more attractive to accumulate wealth than to spend money.

In addition, the White House is pushing for an initiative that would almost single-handedly accomplish Hubbard and Lindsey's goal: a huge expansion of tax-free savings accounts. And the growth of these tax-free savings accounts would dovetail well with the White House's plan for reforming Social Security, which calls for the creation of another type of tax-free investment account for every working American.

In the nature of things, those who have not property, and see their neighbors possess much more than they think them to need, cannot be favorable to laws made for the protection of property. When this class becomes numerous, it grows clamorous. It looks on property as its prey and plunder, and is naturally ready, at all times, for violence and revolution.
-Daniel Webster

With this law, we are creating Health Savings Accounts -- (applause) -- we do so, so that all Americans can put money away for their health care tax-free.

The Health Savings Account was hidden away in the prescription drug bill passed by Congress last December. But unlike the seriously flawed drug plan, the Health Savings Account is an exciting concept that could make health insurance available -- affordable -- for millions of Americans who aren't covered by an employer plan.

It's a concept so new that the insurance industry is just gearing up to make it available. Health Savings Accounts combine inexpensive, high-deductible health insurance plans with a tax-advantaged savings account. "Tax-advantaged" is a new phrase, appropriate because this new account has so many different tax benefits.

Aside from making health insurance more affordable, there's a great social benefit to HSAs since they encourage everyone to be more watchful about unnecessary medical tests and expenses. If you don't spend the money in your HSA account, you keep it!