6/30/2003

KUFM / KGPR

T. M. Power

Making Sense Out of the Bush Economic Policy

Many economists and business leaders are both baffled and disturbed by the Bush Administration’s budgetary policies. The conservative Bush Administration seems to have enthusiastically abandoned the previous conservative commitment to fiscal constraint, balanced federal budgets, and the reduction or elimination of the national debt. But Bush conservatives now dismiss budget deficits and the national debt as relatively unimportant issues and sound like the liberal democrats of old in their enthusiasm for running huge deficits to stimulate the economy. Back in the early 1970s when Richard Nixon admitted “We are all Keynesians now,” conservatives had a conniption. The Bush administration appears to have carried the conversion of conservatives to deficit spending the final step.

But this is not really a Keynesian policy of expanding government spending during a recession to put people back to work. It is the opposite. The vast majority of the deficit is associated with cutting taxes, not expanded government spending. That may well be what one would expect from a Republican Administration. If the tax reductions were focused on the majority of American families, say through a reduction in payroll taxes and an expansion in the earned income tax credit, the tax cuts would have put more purchasing power in the hands of those most stressed by the current recession, assuring that that money would have been spent, providing the stimulus to firms to boost production and hire back workers.

But that has not been the focus of Bush’s tax cuts. They have focused instead on a tiny sliver of the wealthiest individuals and corporations in the nation. With workers not working and consumers not buying, giving the rich investment class more money will not lead to more productive investment, just to increasing inequality among Americans.

There is a logic to the fervor for tax cuts and the indifference to rising federal budget deficits that has nothing to do with stimulating the economy. Bush and his conservative allies are committed to undoing Roosevelt’s “New Deal,” Kennedy’s “New Frontier,” and Johnson’s “Great Society” programs. They want to radically pare down federal programs. What Bush’s series of tax cuts do is create a federal fiscal crisis of gigantic proportions over the next ten years that will both block any hope of new federal programs and will force a dramatic retrenchment in existing federal programs such as education, state block-grant, and low income programs. In addition, the fiscal crisis will be of such a scale that patching up the financial problems of Social Security and Medicare will appear so costly that privatization will appear to be the only solution.

Presto! No matter who is in the White House or who has the majority in Congress over the next decade, the conservative agenda will be carried forward because it will appear that we cannot afford to do otherwise.

That unavoidable fiscal crisis is clear already in the mounting federal deficit. Now we have a war and a recession to justify that deficit. At some point, though, we will have to act to reduce it. But a good deal of the future fiscal crisis is hidden in the Enron like bookkeeping that is buried in the Bush tax cuts. To keep their apparent price tags low, most of the tax cuts that were passed had “sunset” provisions, ending the tax cuts in the relatively near future. This allowed the lost tax revenues and contribution to the federal deficit to be calculated as quite low. But no one believes that those sunset provisions on the tax cuts will go into effect. The Republicans have made clear that they have every intention of renewing each and every one of those tax cuts when they expire.

If, as everyone expects, those tax cuts are renewed, the cost of the tax cuts and the size of the future deficit balloon to over twice the price tag that was put on them when they were passed. When the accumulating interest on the federal deficit is added in, the tidal wave of red ink is even greater.

As the years pass, the revenue cost of these tax cuts will grow. For instance, ten years from now, in just one year, 2013, the cost of just extending the sunset tax provisions will be $430 billion, about 2.4 percent of the total output of the American economy. With that amount of money, the projected shortfall in Social Security over the next 75 years could be filled three times over. Instead of simply putting Social Security and Medicare on a financially sound basis, we will be told instead that the federal government is broke and cannot fulfill its promises to senior citizens. And the government will be broke, intentionally broke, so that these and other federal programs will simply have to be jettisoned.

The Bush tax cuts will not stimulate the economy. We have had three years to see that demonstrated for us as the economy continues to stall in a jobless “recovery.” Although there is no economic logic to the Bush’s fiscal policies, there is a powerful ideological logic that is aimed at undoing most of the progressive legislation that was passed during the 20^th Century. But rather than doing that directly, so that the American people could vote on whether that was the right direction for the country to be moving, it is being done by stealth as relatively secret fiscal “time bombs” are quietly buried in long term tax laws. That isn’t exactly how our civics books tell us democracy is supposed to work.