Well the Fed's lowered the rate again by another half percent. Money's darn near free to business now. But the market just moved relentlessly down all this week since it took a leave of absence to mourn the terrorist attacks of September 11. What's going on?
Usually cheap money stimulates the market, but really that's in times of limited capacity where business needs money to expand plants, build stores, and purchase trucks, planes and so forth. The problem today is that we're just coming off a heady bubble in which business has overbuilt plants and with the crimp in air travel there's little impetus for business to borrow money to expand or to buy planes.
Further, sending $300 checks to the consumer (as I recall this was actually an idea of the Dems) will not have a significant impact since the economic down-turn, that is now further propelled by the terrorist attacks, was again a result of drastically reduced purchasing by businesses from businesses. The consumer doesn't buy chip fab plants nor does he/she buy spools of premium-grade fiber optics or gigabit switching gear. Now of course as businesses lose the business of other businesses they start laying off workers and that does cut into consumer spending which will hurt Walmart, K-mart and the malls.
The markets will start to turn as soon as there is some sense of certainty regarding what the nature of this war will be and as soon as there is some significant business-to-business or more likely government-to-business spending that pushes beyond current capacity or demands new kinds of capacity. There's nothing like a war to rally the people and to stimulate the economy. But if terrorists are able to keep the government and the people guessing, keep everybody off-balance, then it could be a really long hard winter of discontent. --Christine, 9/25/01
"Although Bush's tax boondoggle was heralded as a recession-breaker, its real purpose was to reward the rich people who supported his campaign, by taking social welfare programs from the middle class and the poor. Over the next 10 years, the wealthiest 1 percent of Americans, whose annual incomes average over $1 million, will receive $774 billion in tax breaks, amounting to 43 percent of the total Bush tax cuts. Citizens for Tax Justice, a public-interest group in Washington, estimates that $774 billion would be more than enough to provide American seniors with a comprehensive Medicare prescription drug benefit.
"Who else pays for the rich? Consider a few of the ways ordinary people get screwed yet again. Head Start: The GOP wants to cut the preschool program by $1.2 billion, reducing slots for kids by 150,000. College lending: Republicans aim to cut it by $1.6 billion, eliminating funding for more than 1.4 million poor students. Smaller classes: Forget it. Despite the fevered talk about upping kids' achievement, the government proposes to spend $310 million less on schools, nixing the hiring of 6600 teachers and denying 20,000 children a chance to get into smaller classes. After-school programs: Tough luck. Politicians blab on about helping "little momma" and wring their hands over school massacres, when in fact they could care less. With over three-quarters of all women with school-age children working, 5 million kids are left unsupervised every afternoon, the time when research shows they get into violent crime. Bush wants to cut after-school and summer school programs by over $160 million, removing places for 215,000 kids. Child Care: The GOP wants to cut spending on this block grant by more than $30 million, resulting in 9500 fewer child care opportunities. "Nationally, only one in 10 children who are eligible for child care assistance under federal law receives any help," writes the Economic Policy Institute. "In many states, the cost of child care now outstrips the cost of attending a public college." Unemployment: The Republican spending plan would cut assistance to dislocated workers by about $305 million, affecting services for almost 135,000 workers.
"Meanwhile, the administration's task force on saving the government retirement plan is toying with the idea of making people work longer and cutting payouts. The pols are also looking at converting Social Security to private investment accounts, a move that would put individual benefits at risk while providing aid—in the form of brokerage and management fees—to Wall Street millionaires. That way, Bush and his supporters argue, Joe Six Pack will cash in on the stock market boom—uh, bust." --Janes Ridgeway, 6/20/01
During the Regan years, David Stockman ran Dutch's budget. "Stockman was the enfant terrible who implemented the supply-side agenda and promised to achieve the improbable--reduce taxes dramatically and double defense spending, while cutting other federal programs sufficiently to produce a balanced budget. It didn't work out that way. Ronald Reagan's great legislative triumph of 1981 destabilized federal fiscal policy for nearly two decades, creating the massive structural deficits that were not finally extinguished until a few years ago. Washington seems about to replay history as farce, albeit on a less threatening scale. It prompts me to reflect on what, if anything, was learned from the revolution...
. Stockman was roasted for duplicity and cynical manipulations; for concealing the truth about the looming deficits while Congress plunged forward in fateful error. Stockman was guileful, yes, but it was his intellectual honesty that shocked Washington. That brief moment of truth-telling resonates with the current delusions and deceptions. A lot of what he said twenty years ago seems painfully relevant. "None of us really understands what's going on with all these numbers," the budget director confided during intense budget-cutting battles in the spring of 1981. That admission should be engraved over the door at the Treasury, the Capitol and the White House. Projections of fabulous budget surpluses that provide the premise for this year's political action are no less airy-fairy. Nonetheless, official fantasy becomes the operating truth, so long as everyone bows to it. Stockman's wishful forecasts on economic growth were nicknamed Rosy Scenario by his colleagues, but now the Congressional Budget Office has matched his rosiness. The economy is expanding this year by 2.4 percent and faster next year, according to the CBO. Actually, right now it's headed into the zero-minus territory known as recession. Stockman's boldest accounting gimmick--reporting $40 billion in budget cuts but declining to identify them--was dubbed by insiders "the magic asterisk." Bush has already topped him with his "magic blueprint" and the miraculous "trillion-dollar reserve" he saves and spends at the same time. The new President has not actually issued a real budget, only a "blueprint" that leaves out the grisly, painful details of what spending will get whacked. Dubya sounds like the Red Queen: Tax cuts first, punishment later! Congressional nerds protest, but Bush intends to ram through his tax cuts before anyone has been given an honest picture of the fiscal consequences.
. "Do you realize the greed that came to the forefront?" Stockman exclaimed to me twenty years ago. "The hogs were really feeding." As the Reagan White House lost control of the action, Democrats and Republicans engaged in a furious bidding war to see which party could deliver more tax breaks and other boodle to the special-interest hogs (Republicans won, but the Dems gave it a good try). The Bushies recognize this danger and are trying to wall off the usual business greedheads from exploiting the same opening this year. The deal-making may still begin, however, if the White House is a few votes shy and needs to seduce a few hungry senators with special favors. As Stockman learned, if you buy one senator, you might have to buy them all. Another of Stockman's vivid metaphors is the centerpiece for 2001--the "Trojan horse" approach to rewarding the rich. Giving everyone the same percentage rate cut sounds fair, but actually delivers most of the money to the very wealthy, who pay the top rate. Supply-side doctrine "was always a Trojan horse to bring down the top rate," Stockman revealed. "It's kind of hard to sell trickle-down economics, so the supply-side formula was the only way to get a tax policy that was really trickle down." This year's new wrinkle is a Keynesian twist. Instead of talking about rich investors who need a little encouragement to invest in America, Bush talks about the waitresses who need a little cash to pay off their credit-card debts.
"The most disturbing difference I see in 2001 is political--the role reversal between the two major parties. What Republicans learned from the revolution is this: Deficit spending doesn't really count for that much in politics--not among average voters--and a party will not be punished for creating fiscal disorder as long as other good things seem to happen. Democrats used to understand this as a visceral matter but have forgotten the street-smarts their party knew in olden days. On fiscal discipline, the two have swapped positions. Republicans, once the scolds, are now the reckless feel-good party, willing to risk big deficits in order to deliver goodies to main constituencies. Democrats, perhaps wishing for respectability, have become the party of rectitude, preaching forbearance of pleasure. Republicans want voters to have a little fun. Democrats sound like nervous bookkeepers. Leaving aside economic consequences, Democrats have dealt themselves a very weak position, even though they're largely right about the budget accounting. Most Americans are not fiscal experts and cannot be expected to absorb all the fine-print arguments about cause and effect. Think of the old New Yorker cartoon with a dog listening to his master. All the dog hears is: "Fido, blah, blah, blah, Fido, blah, blah, blah." What voters hear from Republicans is: "Want to cut your taxes, blah, blah, blah, want to cut your taxes, blah, blah, blah." What voters hear from Democrats is: "Must pay down the debt first, blah, blah, blah, must pay down the debt first, blah, blah, blah." For skeptical voters with already low expectations of government, this is not a tough choice.
"The great accomplishment of Reagan and the supply-siders was to persuade the old-guard Republican Party that its root- canal approach to fiscal policy was a loser--and that recklessness can be a win-win proposition for their side. If the Trojan horse approach succeeds in winning regressive tax-cuts, the GOP delivers huge rewards to its favorite clients. If this also creates a big hole in the federal budget, that's OK too, since runaway deficits will throw another collar around the size of the federal government and provide yet another reason to slash the liberals' social spending. With clever marketing, the GOP may even persuade voters it was spendthrift Democrats who created the red ink. Even recession is OK if the timing is as lucky as the Gipper's. When this recession ends, Bush will credit his tax cuts for the recovery and claim vindication in time for re-election....
"One more point: Both parties are playing with a phony deck of cards. No matter what unfolds this season, the government is not going to reduce the "national debt." On the contrary, the government's total indebtedness is going to keep growing steadily, from $5.6 trillion right now to $6.7 trillion by 2011. Despite what you read in the newspapers, that occurs with or without tax cuts and even if all the outstanding Treasury bonds are paid off (if you still don't believe it, check the CBO's latest budget forecast with its chart on page 17). The awkward fact neither party brings up is that federal financing has depended crucially on collecting more money than it needs from working people since 1983, when both parties collaborated in a great crime of bait and switch. After Reagan cut taxes for the wealthy and business in 1981, he turned around two years later and raised Social Security payroll taxes dramatically on workers (earnings above $76,000 are exempted from Social Security taxes). Ever since, workers have been paying in extra money toward their future retirement--trillions more than needed now by Social Security--and the government simply borrows the surplus revenue to spend on other things: upper-income tax cuts or paying off Treasury bonds or reducing the fiscal damage from deficits in the operating budget.
"Taxing one class of citizens--the broad ranks of working people--so government can devote the money to other people and purposes is not only wrong but profoundly deceptive, bait and switch on a grand scale. Government still owes workers the money, of course, and someday will have to find the borrowed trillions somewhere, either by raising taxes or borrowing the money or possibly by cutting Social Security benefits. When FICA taxes were raised in 1983, Reagan at first objected and reminded aides that he was opposed to raising taxes--of any kind. David Stockman reassured him. If the rising payroll-tax burden was imposed on young working people, they would eventually revolt and Social Security would self-destruct of its own weight. The Gipper liked that and gave his OK. The same objective, now called privatization, shows up again this year on George W. Bush's agenda. He proposes to "save" Social Security by destroying it." --William Greider, 3/20/01
"Bush's first speech to Congress Tuesday night had words and numbers. The words soothed: Americans can have it all. The numbers, however, don't add up. Although he won't be president for all of them, Mr. Bush talked about the 10 years for which the Congressional Budget Office forecasts $5.6 trillion in budget surpluses. That forecast is as substantial as the average unicorn. Mr. Bush said he would leave $2.6 trillion of the surplus in Social Security, where it belongs. He said he would use $2 trillion to pay down part of the $3.2 trillion the government owes its bondholders. He said he would save $1 trillion for other needs, such as a military buildup and bailing out farmers. He said he would use $1.6 trillion for tax cuts. That makes $7.2 trillion, not $5.6 trillion. Is anyone counting? Mr. Bush promised to protect and expand Medicare, but he didn't set aside the temporary surpluses in the Medicare trust fund. He said $1.6 trillion is "just right" for the tax cut, but by also saying he wants to make it retroactive to Jan. 1, he turned it into an 11-year tax cut with a $2 trillion price tag. By slowing repayment on the debt, he runs up interest charges he didn't account for. "Education," he said at the start of his speech, "is my top priority." Those are words. The numbers tell a different story. The federal government provides about 7 percent of the nation's school budget. If Congress enacts Mr. Bush's program, the federal share will be $44.5 billion, or $4.6 billion more than this year but about the same 7 percent. The difference would be that federal money has been targeted at schools with poor children, but states then could spend it as they wish -- so long as they wish to make students take tests.
The numbers say Mr. Bush's top priority is cutting taxes. The budget for the single year starting Oct. 1, which Mr. Bush released Wednesday, calls for cuts in agriculture, energy, interior, justice, labor, transportation, environmental protection and disaster relief. Those are true cuts, in dollars, not just in the rate of increase. Mr. Bush forecasts a $231 billion surplus for 2001-02, based on expected growth of 2.4 percent in the gross domestic product. Since that figure was only 1.1 percent for the last quarter of 2000, and since Mr. Bush insists the economy is weaker now, he has to count on a wonderful growth spurt later this year. It's not impossible, but it's not something he would rely on if he were good with numbers. To avoid a return to deficit spending, which would raise interest rates and more than wipe out any income-tax reductions for middle-class Americans, the president should start modestly on tax changes. He correctly proposed an increase in the child-credit deduction from $500 to $1,000. He can seek reform of the marriage penalty. He can seek reform -- but not repeal -- of the estate tax.
"Tuesday night, Mr. Bush used a myth to justify his budget-busting tax cut. He said Ronald Reagan's tax cuts of 1981 kicked off the '80s boom. In fact, Mr. Reagan approved even larger tax increases the next year, when the boom began. The first President Bush's tax increases, in 1990, and Bill Clinton's, in 1993, helped to end deficits and ignite the '90s boom. Mr. Bush used an easy style to make his case. He based his argument on words. When you add numbers and add them up, his case collapses." --Palm Beach Post Ed., 3/1/01
1. "One of [Bush's] silliest arguments [was]: We're not cutting spending! We're only slowing the rate of growth in spending. That means [he's] cutting spending. This game gets played all the time. "See? In last year's budget there was only $100 million for children's health care, and this year we have $101 million. That's an increase!" No, it's not. If you know that the program will have to serve 5 percent more children this year than it did last, that's not an increase -- it's a cut." --Molly Ivins, 2/27/01
2."The "Who benefits?" part of President Bush's proposed tax cut has been thoroughly examined. Even the dimmest of us have got the point that it's a tax cut for the very rich with a little sop thrown in for some of the rest of us. According to the Citizens for Tax Justice, the poorest 20 percent of taxpayers receive on average a $15 tax cut the first year and $37 by 2004. The 20 percent of taxpayers in the middle of the income distribution scale get an average of $170 in tax cuts, rising to $409 in 2004. The average cut to the top 1 percent of taxpayers would be $13,469 in 2002 and $31,201 in 2004. The Bush plan gives 43 percent of all the tax relief to the richest 1 percent of the people. --Molly Ivins, 2/27/01
2."Look at the cost of Bush's tax cut in terms of what could otherwise be paid for. According to Citizens for Tax Justice, after 10 years, when the Bush cuts have fully kicked in, the cut for the richest 1 percent will total $774 billion. That just happens to be more than the $736 billion needed to provide a high-quality prescription drug plan, and that $736 billion is over and above the inadequate plan proposed by Bush. Of the actual cuts proposed by Bush, the Energy Department's fuel efficiency and renewable fuels program will be cut 22 percent. Given the number of Texas oilmen in this administration, we should have expected it, but talk about shortsighted." --Molly Ivins, 2/27/01
3. "As for the tax cut proposal, Bush got off to a bad start by packaging it as part of the budget process, severely limiting the opportunity for debate or amendments, such as the closing of tax loopholes. More directly, the Bush plan is unfair, and even disingenuous, in that it ignores the large burden that Social Security and other payroll taxes take on modest wage earners. When measured by the overall federal tax burden, including payroll taxes, Bush's plan would be shamefully regressive." Boston Globe Editorial, 2/28/01
4. Consider the "doubling of the child credit from $500 to $1,000, as proposed by Bush, but adding a provision that would make that credit refundable, so that families with little or no tax liability would still get a check. The pricetag for this proposal is $44 billion a year, according to the National Campaign for Jobs and Income Support, not excessive in this environment." --Boston Globe Editorial, 2/28/01
5. "Mr. Bush insists that he will not raid the Social Security surplus. But he has conspicuously refused to make the same promise for Medicare — and has also refused to consider proposals that would make future tax cuts contingent on actual surpluses, instead of locking them in on the basis of highly questionable projections. Why? Because if you make realistic estimates both of future spending and of the costs of Mr. Bush's proposed tax cut (which will end up being at least $2 trillion, and probably considerably more), it becomes clear that he will use up all of the Medicare surplus and make a substantial dent in the Social Security surplus too." -- Paul Krugman, NYT, 2/28/01
6. "As even nonpartisan experts recognize, his $1.6 trillion cut is actually closer to $2.6 trillion once allowances are made for its retroactivity, lost debt- service savings and Congress's determination to change other tax laws to make Mr. Bush's package fully effective. That means that the $1 trillion "contingency fund" that Mr. Bush said he wanted to set aside for the next 10 years will be almost all eaten up. Mr. Bush boasted that he would use $2 trillion for paying down the debt over 10 years. But that is far less than the $2.9 trillion generated by the Social Security and Medicare trust funds that most members of Congress want to use for that purpose. The underlying danger is that the president's plan will siphon revenues from these two big retirement trust funds to finance the tax cut and other selected budget items." --NYT Ed, 2.28.01
7. "Mr. Bush was right to say that continuing the big spending increases of the last few years could become a "dangerous road to deficits." But he left out the fact that the same can be said for unrestrained tax cuts. The Bush tax plan, coupled with big increases in education, defense, science research and a few other areas, in the context of an overall 4 percent growth rate, translates into significant cuts in many programs. Mr. Bush did not mention that last night, because to do so would have underlined the distorting effect of the tax cut. The tax cut has also forced him to introduce the dubious theory that only two-thirds of the national debt is "available" to be retired and the rest can be ignored for now." -- NYT Ed, 2.28.01
8."Look at the cost of Bush's tax cut in terms of what could otherwise be paid for. According to Citizens for Tax Justice, after 10 years, when the Bush cuts have fully kicked in, the cut for the richest 1 percent will total $774 billion. That just happens to be more than the $736 billion needed to provide a high-quality prescription drug plan, and that $736 billion is over and above the inadequate plan proposed by Bush. Of the actual cuts proposed by Bush, the Energy Department's fuel efficiency and renewable fuels program will be cut 22 percent. Given the number of Texas oilmen in this administration, we should have expected it, but talk about shortsighted." --Molly Ivins, 2/27/01
9. "It's obvious that shifting an immense amount of the tax burden off the very wealthy puts more of it on the rest of us. What you get is a shift in the proportional burden of taxation from the rich to the less-well-off. In the curious logic of the Republican Party, anyone who points out this blatant act of class warfare is accused of "fomenting class warfare." As you may have noticed, rich people are not staggering under their burden of taxation -- there are more of them, and they're richer than ever. If this is what the right calls "redistribution of wealth," it's working fine right now to pump money from the poor to the rich." --Molly Ivins, 2/27/01
10. Let's see...Bush claims that there is a $5.6 trillion surplus. He wants to spend $2.6 trillion of that on Social Security, $2 trillion towards the debt, and $1 trillion to cover unexpected problems down the road, like the need for more military funding after Rumsfeld runs the numbers. That shoots the surplus, doesn't it? So how is Medicare being protected? Didn't he say his budget plan would protect Medicare just like Social Security? But there's no more surplus left. The money has been spent. 2.6 plus 2 plus 1 equals 5.6. Oh, yeah, I forgot. Bush wants $2 trillion from the surplus for his tax cuts. Guess what, George? There's no money left! --Politex, 2/28/01
"Bush enters the House chamber tonight for his first big speech to a joint session of Congress much as he arrived at the White House. That is, ambiguously.... It is not just the numbers in Congress, where Republicans literally are forced to share power with Democrats in the Senate and the House has a thin margin of Republican control. Democrats facing a popular new president with a dramatic program to turn around what has come before don't wait to get run over. They lie down. This is how Ronald Reagan got what he wanted, early on. No, the trouble for Bush isn't really the Democrats. It's Republicans.
"Senate Republican leaders already have told the White House there aren't the votes in the Senate now to pass the $1.6-trillion tax cut that is the linchpin of the Bush plan for America. Too many Republican moderates are squeamish about spending a surplus that hasn't yet materialized and, being moderates, they worry about balancing priorities. But that does not get to the depth of potential trouble. That is best measured by asking a true supply-sider, a loyal Republican who is an admirer of Jack Kemp and who has voted for just about every big tax cut ever put on the House calendar. That is Peter King. Ask him about support for the new president's budget blueprint, to be outlined tonight and delivered to Capitol Hill tomorrow, and this is what he says: "We have to see where the cuts are."
" The cuts. They are coming, though their arrival will not be advertised. They will be portrayed as reductions in the "rate of growth" in federal spending. The government measures spending based on what it costs to maintain services at their current levels. In Washington, rolling back from those levels is considered a cut in spending. Bush disagrees. "In my parlance it's not a cut," the president said at his news conference Thursday. "When you increase spending is not a cut." [sic] The last politician who staked his political fortunes on this argument was Newt Gingrich. He also gives speeches around Washington these days, though not any longer in the House chamber.
"Bush sets himself up for a mighty challenge. It has little to do with how he measures up, rhetorically, with his predecessor, who was known for captivating performances against a backdrop of controversy. The course Bush charts requires convincing a skeptical public that the surplus should be spent on tax cuts that go disproportionately to the very wealthy, and that to deliver this bounty means cutting spending for a lot of things-even though we have a record surplus. --Marie Cocco, 2/27/01
The proposed tax cut of roughly $2 trillion — $1.6 trillion of tax cuts plus $400 billion of interest on debt that would otherwise have been retired — would substantially diminish the fiscal position of the federal government, and would create a serious threat of deficits on the non-entitlement side of the federal budget. That, in turn, could increase interest rates and recreate the loss of consumer and business confidence associated with the deficits of the late 80's and early 90's.....
The serious threat of the proposed tax cut to fiscal soundness becomes apparent when you look at the numbers a little more closely. The surplus of $5.6 trillion as projected by the C.B.O. is roughly $2.1 trillion after deducting Social Security and Medicare surpluses — as many members of Congress in both parties have advocated — and making realistic adjustments to better represent future spending on current discretionary programs and tax revenues. Since the proposed tax cut would cost $2 trillion, or $2.2 trillion if an alternative minimum tax adjustment is included, it would entirely use up the remaining surplus, with no additional debt reduction. And that leaves nothing for special programs that already have broad support, like a prescription drug benefit or a greater increase in defense spending for a missile defense system, or other purposes or additional tax cuts, all of which are almost sure to happen this year or over the next few years. These spending increases and the additional tax cuts could well cost between $500 billion and $1 trillion, leading to a deficit under this analysis of the C.B.O. projections.
Moreover, five-year budget forecasts, to say nothing of 10-year forecasts, are highly unreliable — just look at the forecasts that were made five or 10 years ago. Thus, even if you favored a very large tax cut as the preferred use for available surplus — which I emphatically do not — even a moderate degree of prudence would suggest waiting a few years to see whether or not the projected surpluses are actually occurring, meanwhile paying down debt. That would also be in plenty of time to deal with any concerns about the uses that might be made of the surplus after the debt is retired. The suggestion that tax cuts could be rescinded if projected surpluses don't materialize seems unlikely politically. --Robert Rubin, 2/11/01
During the first working week of the Bush Administration, I went to see Senator Kent Conrad, of North Dakota, who has just become the ranking Democrat on the Senate Budget Committee. The size of Bush's tax cut will probably be decided in a budget resolution, which means that Conrad's committee will be the place where its fate is determined. What Conrad thinks matters a lot. Conrad, a careful, meticulous man who spent most of his early career working in the North Dakota Tax Department, handed me a printout of a presentation called "Budget Surplus Considerations" (presentation software seems to have become the lingua franca of the United States Congress), and led me through it. The Senate Budget Committee staff had tentatively set the surplus through the year 2011 at $5.7 trillion. But if you took out estimates of the portions that ought to go into the Social Security and Medicare trust funds the number would come down to $2.6 trillion. Then if you subtracted to account for the passage of a few seemingly inevitable legislative items, such as a new prescription-drug benefit, you'd be down to $2 trillion.
That was page 1 of the presentation. On page 2, Conrad reëstimated the cost of Bush's tax cut, to account for various items that had been too low, and came up with $2.2 trillion--ahead of Bush's own estimate of $1.6 trillion, and more than the surplus as Conrad figured it, in other words. Page 3 was labelled "Possible Compromise." It suggested setting aside the portions of the surplus meant for Social Security and Medicare and dividing the remainder into three portions, each worth eight hundred and fifty billion dollars: a tax cut, a series of new domestic programs, and a "strategic reserve" in case the federal-budget situation became less rosy, which would happen quickly if there was a recession. The new, higher budget-surplus projections assume that, starting next year, the economy will grow at a rate of more than three per cent a year over the next decade. In the last quarter of last year, it grew at a rate of only 1.4 per cent.
"Every indication is that Bush will push hard for his full proposal," Conrad said. "It's a mistake. It's a serious mistake. It's a very serious constraint on the federal government, because there is very little money left over: little for Social Security, nothing for other domestic programs, nothing as a hedge. He's used up all the money. There is nothing left for other priorities. It just doesn't make sense to put all our eggs in one basket that way." --Nicholas Lemann, 2/21/01
One of the defining moments in the life of any adult comes with the realization that one pays off the lion's share of the interest on a loan prior to paying off the loan, itself. This is called "The Golden Rule." Whoever has the gold rules. So there you go, buying a $20,000 car with a 4-year loan, only to realize that 2 years later you still owe, say, $15,000 dollars on the car. And don't get me started on home mortgages. It's no accident that the French word for "death" is in that word. So why are we not surprised to learn that Bush's tax cuts will work in exactly the same way? Most of the tax cut booty is distributed in the first five years, while most of the money to pay for the tax cuts is projected to arrive during the last five years. That's one reason why the proposed $1.3 trillion cut that has been jacked up to $1.6 trillion will end up costing over $2.2 trillion, which is a bit more than what's supposedly left in the surplus, not even counting the new Bush programs such as education vouchers, faith-based welfare, privatized social security, and privatized drug plans. And if the government's surplus projections are off, and they usually are, in order to keep the country afloat there will have to be severe cutbacks in programs already in place as well as the creation of a new national debt. By that time, of course, Bush will be out of there and we will be saddled with his budgetary ineptitude. But that's the way he plans it, because that's exactly what he did in Texas. He used a tax cut to make political hay, and now that he's gone the state legislature is looking for social programs to cut to make up for a tax cut that turned out to be much greater than could be afforded. When questioned by reporters late last year about Texas' financial problems as a result of his tax cuts, Bush said that was Texas' problem and he was no longer responsible. No kidding, he really said that. He gave the property tax cut money to his wealthy friends and ran.
While there have been a number of proposals to protect us from Bush's tax scheme, few have sensed Bush's big picture. About Bush's plan to distribute tax cuts before the money is there, David Broder writes, "a better, safer, more prudent way...is to give people a tax cut now, from the surpluses that are actually in the Treasury, but to trigger additional tax cuts over the coming decade only if agreed-upon debt reduction targets are met." (WP, 2/13) This echoes Federal Reserve Chairman Alan Greenspan's testimony to Congress last month. "It is important that any long-term tax plan, or spending initiative for that matter, be phased in. Conceivably, [it] could include provisions that, in some way, would limit surplus-reducing actions if specified targets for the budget surplus and federal debt were not satisfied." While these are rational suggestions, they fail to address Bush's ultimate purpose in providing a tax cut so large that it would, like Reagan's tax cut, lead to debt and severe cutbacks of governmental programs already in place. Bush and his advisors appear to want that to happen. In other words, the purpose of the tax plan is three-fold. First, it will give Bush's donors, the wealthy, twice as much back as they put into the surplus (20% vs. 40%). Secondly, the percentage of taxes Bush's donors will pay in the future will go down while everyone else's will go up. Thirdly, since there will not be nearly enough money left to fund the in-place governmental programs, those programs that the Bush's donors don't use will be cut. The ultimate effect will be to weaken both the federal government and the Democratic Party.
Nicholas Lemann recently nut-shelled the outcome in the New Yorker: "If all this happened, Bush not only would have passed a popular tax cut but would have made it difficult for the Democrats to offer voters more government services; instead, they'd have to be the party of fiscal restraint, because all the money for services would have been removed from the federal budget for at least the next ten years. The tax code would be left looking more the way [a wealthy Bush donor] wants it to look. Under Bush's campaign tax-cut proposal, the share of the federal-tax burden borne by almost everyone would rise slightly, and the share borne by those in the top one per cent would fall significantly. But this wouldn't be obvious to the middle class, because people's actual tax payments would go down." The effect of this outcome on the Democratic Party has been best expressed by Karl Rove, Bush's long-time political guru and White House advisor: "As people do better, they start voting like Republicans--unless they have too much education and vote Democratic, which proves there can be too much of a good thing." We hope that the cynicism of both Lemann and Rove with respect to the average citizen is misplaced. --Politex, 2/16/01