President George W. Bush wants Congress to pass a budget for fiscal year 2004 whose centerpiece is a $726-billion tax cut (over ten years). The president plans to eliminate the tax on most stock dividends and accelerate already scheduled tax reductions for those in the higher brackets. Bush has called his proposal "bold," and that is certainly one word for it. Others call it irresponsible, or even "fiscal insanity."
Bush, lest we forget, entered the White House with budgetary surpluses. Now, hundreds of billions of dollars in deficits stretch out as far as the eye can see, threatening (perhaps by design) to undermine both Medicare and Social Security. Yet the president refuses even to consider a return to balanced budgets. Bush’s argument is familiar "supply side" economics: tax cuts produce investment and economic growth that in turn increase tax revenue. Once the economy turns around, thanks to the stimulus provided by lower taxes, the budget will balance itself.
Of course, that is not how Republican tax cutting has worked in the past. Under Ronald Reagan, significant tax cuts and large military budgets produced unprecedented deficits while at the same time dramatically reducing the amount of tax money available for domestic programs. With a budget deficit projected at $400 billion this year and the costs of war in Iraq ($75 billion for the first six months) only beginning to be felt, Bush’s "bold" budget proposal is obviously designed to have the same impact on the federal government as Reagan’s. In fact, most experts agree that Bush’s tax proposals are far more radical than Reagan’s, with federal assistance to the poor through Medicaid, food stamps, workfare, and other programs already on the chopping block.
Bush’s willingness to push through such an ideologically driven fiscal agenda in the midst of war, and to use veiled appeals to patriotism to do so, has stunned even those resigned to the cynicism of this administration. Whether Bush will succeed in getting his full tax program through Congress is not clear. Since the Republicans control both the House and Senate, his chances are good. The House approved the entire package earlier last month. Last week, however, in a moment of political courage, three moderate Republicans joined Senate Democrats to cut the president’s proposed tax cuts in half. That members of his own party were willing to say no to Bush while the nation is at war is an indication of just how extreme the president’s budget is. A final budget bill is now being negotiated in a joint Senate-House committee. Unfortunately, it is controlled by partisans who are likely to restore much of the $726-billion tax cut. Will moderate Republican senators, like Lincoln Chafee (R.I.) and John McCain (Ariz.), who are concerned about the looming deficits and the unpredictable costs of war, be able to stand up to the pressure brought by the White House? Probably not.
Why is the president following such a seemingly reckless path? Bush, of course, has no interest in a continued economic slowdown. Economic growth, and especially an economy that produces jobs, are in his political interest. Any president would want consumer confidence as well as the stock market to rebound. Evidently, Bush feels strongly that providing the right incentives for investors and for corporations is the solution to the recent economic malaise. Administration spokesmen are contemptuous of worries about how federal deficits will drive up long-term interest rates, thus drying up private investment. Instead, the administration repeats in mantra-like fashion that every economic problem is at root a tax-incentive problem. But that’s too simple. Federal Reserve Chairman Alan Greenspan has raised doubts about the wisdom of such large tax cuts. Many economists fear that it is overcapacity, not underinvestment, which lies at the heart of the nation’s economic woes. Putting more money into the pockets of the wealthy is precisely the wrong course of action. If the economy needs stimulus, this argument goes, it would be best to cut taxes for those in the lower brackets, who will spend the money and thereby create the sort of demand that may coax corporations back to investing and hiring.
Economics, of course, is a notoriously inexact science. But there is a moral dimension to Bush’s economic policy that is less open to dispute. Bush has led this nation into war with Iraq in an effort to forestall the use of weapons of mass destruction, depose a murderous tyrant, and bring democracy to an oppressed people. In making his case for war, Bush has emphasized the moral justification for military action. Having asked the American people to rise to the moral and humanitarian challenge abroad, is now the time for the president to fundamentally alter the basis of the social contract at home? As the New York Times reported, Bush’s tax proposals "could eliminate almost all taxes on investment income and wealth for almost all Americans." To shift, especially at this time, the burden of taxation away from the wealthy toward the middle class and below is not simply imprudent, it is a mockery of basic fairness. As Senator Tom Daschle (D-S.D.) has said, "At the same time we are asking our young people to fight a war for our security, Republicans are passing a budget that will force those same young people to pay the bill for [the Republicans’] recklessness."
A president who is convinced that war was necessary should be honest with the American people about the costs of war. He should also be honest enough not to use the tragedy of war as a cover for pursuing the crudest sort of political spoils system.
April 1, 2003