In recent weeks the stalled economy has brought renewed attention to the White House’s fiscal record and plans for the future. For the third straight year the number of people living below the poverty line has increased, as has the number of Americans without health insurance. During the Bush administration, the United States has lost roughly 1.8 million jobs. George W. Bush will be the first president since the Depression to preside over a net loss in jobs during his term. The Congressional Budget Office projects this year’s federal deficit at $422 billion. If Bush’s tax cuts remain in place for ten years, the projected deficit will reach $2.3 trillion. In light of these troubling statistics, it is little wonder that people on both the right and left are anxious about our economic future.
The president has deflected criticism of his economic stewardship by focusing tirelessly on the war in Iraq. When asked, he assures voters that his tax cuts will spur the economy and thereby increase federal tax revenue, thus reducing the deficit. Yet Bush’s reliance on tax cuts to solve every problem is not just bad public policy, it is bad economics. By pushing through the largest tax breaks since the Reagan years, Bush has done more than any modern president to widen the disparity between rich and poor. The willingness of Congressional Democrats facing election to vote to extend some of those tax cuts last month was disgraceful. Not only will the tax cuts fail as economic stimulus, they will have a devastating effect on government programs like Social Security.
Bush’s radical tax agenda and its consequences were laid out in these pages by Charles R. Morris (“Economic Injustice for Most,” August 13). John Cassidy made a similar argument in the New Yorker (September 6), emphasizing that the Bush administration’s goal is to undermine the very idea of progressive taxation, by which those who benefit most from America’s economic abundance have a proportionate responsibility to provide for the commonweal. “Since the personal income tax was introduced,” Cassidy wrote, “it has been based on two principles: the burden of taxation is distributed according to the ability to pay; and capital and labor carry their fair share. The Bush administration appears set on undermining both of these principles.” Eliminating taxes on savings and investment, as the Bush administration seems determined to do, will disproportionately shift the tax burden to the shoulders of the average wage earner. Bush’s flirtation with the idea of a flat tax would take the nation in the same direction.
The fact that the war in Iraq has dominated political debate is one reason the administration’s radical economic agenda hasn’t galvanized public resistance. But the Bush team has also done a remarkable job of keeping under wraps the long-term consequences of what the New York Times’s Daniel Altman calls the “neoconomy.” “Unlike the upheaval in foreign policy, the neoconomists’ revolution is certainly not being televised,” Altman writes in Neoconomy (PublicAffairs). “There was no big speech to mark its birth, no catch-phrase ready made for the headlines.” Redistributing the nation’s wealth upward is not something the Republicans are eager to advertise to anyone but the wealthy.
Recently Bush has tried to sell his economic policy by touting it as the means to a new “ownership society.” “One of the most important parts of a reform agenda is to encourage people to own something,” a Bush campaign ad announces. “Own their own home, own their own business, own their own health-care plan, or own a piece of their retirement. Because I understand if you own something, you have a vital stake in the future of America.” As with many of the president’s platitudes about building freedom and democracy in Iraq, the benefits of “ownership” are impossible to dispute in the abstract. Still, as the chaos in Iraq demonstrates, voters should be wary when this president justifies his actions with high-sounding and unfalsifiable arguments. Most Americans rely on weekly wages to get by, not on stock dividends or capital gains. Yet Bush’s “ownership society” entails the rollback of taxes on such investments, even though a recent study finds the richest 1 percent of Americans earn almost half of their income from savings and investment instruments. Like many of Bush’s tax initiatives, these proposals will make it easier for the wealthy to hold onto their money and harder for the poor and middle class to accumulate any. Furthermore, without drastic cuts in government programs, this windfall for investors will result in even larger deficits and eventually increased taxes on those who can afford them least.
The White House believes that more money in the hands of investors means more economic stimulus. Yet there is compelling evidence to suggest that tax cuts aimed at the middle and working classes, who are likely to spend their money on necessities, are more effective in stimulating the economy. A recent study conducted by economists Karen E. Dynan of the Federal Reserve, Jonathan Skinner of Dartmouth College, and Stephen P. Zeldes of Columbia University indicates that the wealthy tend to save at significantly higher rates than the middle class, contradicting the Republican mantra that the money earned by the rich will eventually “trickle down.”
But the Bush team is interested in the ideology of tax cuts, not the economic facts. For example, it has proposed replacing traditional IRAs with tax-free savings accounts. The plan would allow individuals to place $7,500 each year in such accounts. This represents an enormous tax shelter for those with excess income but will do little for the average American.
The real problem with the tax-free savings accounts—and the Bush tax plan in general—is that it merely passes on the costs to future generations. Taxes on investment are a huge source of government income. Eliminating them will drive the nation further into debt and have a permanent effect on government programs. Some experts predict that Social Security could run out of money as early as 2031. The tax cuts also mean less money for much-needed social and educational programs. According to a recent report by the Center on Budget and Policy Priorities, Bush’s 2005 budget proposes long-term cuts in funding for housing, education, job training, and health-care programs.
The likely consequences of Bush’s economic and tax policy are clear enough, even if underreported. The president’s numbers just do not add up. The Bush team seems to be counting on the fact that tax law and economic policy are esoteric topics that the average voter knows little about. But voters should be able to tell, as Ronald Reagan memorably put it, if they are better off now than they were four years ago.
September 28, 2004
