The Era of Irresponsibility
During the 2000 presidential campaign, George Bush famously called for a new era of responsibility in American politics. In his own words, "responsible leaders confront problems. They don't pass them along to others." In the State of the Union speech last month, Bush echoed his talk from his campaign. He claimed that his administration "will not pass along our problems to other Congresses, to other presidents, and other generations."
The current federal budget deficit is not what makes Bush and his administration irresponsible. Indeed, ever since John Maynard Keynes first urged governments to regulate the economy, deficit spending has been a strategy of governments of all stripes during times of economic distress. The irresponsibility of the Bush administration manifests itself in other ways—in its sudden embrace of long-term deficit spending, and in its disdain for the fiscal plight of state governments.
Bush the candidate declared that Al Gore would "pass the buck and the bill to the next generation of Americans, leaving trillions in debts to voters he will never face." Already, Bush the president has overseen an administration that has transformed projected surpluses of some $5.6 trillion into deficits as far as even the eyes of its own prognosticators can see. Passing the buck, and the bill, is already his modus operandi.
In his first few months in office, President Bush convinced both Democrats and Republicans in Congress to pass a massive set of tax cuts. He claimed that the $1.6 trillion cost over ten years would only make partial use of ten years of substantial government surpluses. Bush sold his 2001 tax cuts as a boon for the middle class, and, indeed the middle class would benefit. Over time, the 28% marginal tax rate paid by many middle-class families would fall to 25%. The child tax credit would increase over time from $500 to $1000. But the 2001 tax cuts were also laden with fruit for the rich. Over time, the top marginal tax rate would fall from 39.6% to 35%. The estate tax, which generally affects estates with over $1 million in assets, would affect fewer and fewer estates and see its top rate decline from 60% to 45% and then to 0%.
In order to make these tax cuts all appear to cost only $1.6 trillion, Bush needed more than a little irresponsibility. First, sunset provisions in the 2001 tax cut mandates that all of its tax cuts and loopholes revert to 2000 levels at the beginning of 2011. Second, the tax cut plan did nothing to fix in the long run how the alternative minimum tax (AMT) affects upper-middle- class taxpayers. The AMT forces taxpayers to calculate their tax liability without some tax breaks, like the child tax credit. Bush and his allies surely knew that political pressure would entice Congress to repeal the sunset provisions. In fact, the Bush White House took less than two years to do so itself. And fixing the problem with the AMT is bound to be a priority of the next presidential administration, but the current administration saw fit to pass the buck, and the bill.
Two years into his term of office, President Bush faces a stagnant economy, in which consumers fear for the future, in which businesses are loathe to invest in new equipment or new employees. A recession in 2001, coupled with the terrorist attacks on 11 September, ruined the forecasts of years of budget surpluses. That recession, however, was tame compared to the economic travails that the United States faced in the 1890s, the 1930s, or even the 1970s. A fundamentally mild recession thoroughly devastated the Republicans' argument that their 2001 tax cut was a prudent way to spend the surplus. Once the surplus was gone, Bush and his administration started arguing that their tax cuts were necessary for economic growth. It is this argument that spurred their current proposals for $1.3 trillion in additional tax cuts over the next ten years. Now they want to make their 2001 tax cuts permanent and eliminate the federal income tax on most dividend income. Furthermore, they propose new tax-free savings and investment accounts that would do very little for working- class Americans but be a huge windfall for the rich. The Bush administration paints its new proposal as vital to bolstering the economy. The 2001 tax cuts, however, stimulated the economy so well that Bush needs to double up his bet.
The 2003 tax cut proposals threaten to make the current budget deficits permanent in nature. President Bush has proposed permanent changes to the tax code that will disproportionately benefit speculation in stocks and bonds, not temporary measures specifically crafted to prime the economic pump. Today, interest rates are at historic lows, and the federal government has little trouble making interest payments to satisfy the holders of $6.4 trillion in government debt. If the current administration turns an anomalous $307 billion budget deficit into a thing of normalcy, the debt will continue to grow and the interest payments that accompany it will grow apace. Even a cursory overview of the federal budget provisions makes clear that, barring a stunning economic turnaround, future Congresses, future presidents, and future taxpayers will pay for the tax cuts of 2001, and, if Bush has his way, the tax cuts of 2003.
Even worse than the planned tax cuts is the cavalier nature of the Bush administration to the fiscal plight of most of the individual states. While the federal government can easily borrow money to meet even a record budget deficit of $307 billion, state governments have far less leeway. Some by law must balance their budgets. Others risk ruining their credit ratings by borrowing to meet current needs. In many states, receipts from income and sales taxes have both declined. The new budget proposal makes no effort to help states out of their crises, even though states will hardly help the national economy by firing workers, cutting services, or raising taxes. If the Bush administration were trying just to stimulate the economy, funneling money to state governments would be the ideal place to start.
George Bush follows in the dubious footsteps of his father and Ronald Reagan, two Republican presidents who promised that tax cuts for the wealthy were the secret for the economic health of the country. Now all three have managed to adds hundreds of billions of dollars on top of the public debt. Some in the Bush administration are true believers in supply- side economics, in the notion that cutting taxes will somehow increase federal revenues faster than raising taxes. Empirical evidence keeps escaping them, but they hold onto their pet theory nonetheless. It is hard to escape the conclusion, however, that others are more cynical. Do they simply want to find any way possible to cut taxes for the aristocracy? (The aristocrats would benefit from shifting the income tax burden to wages and away from capital gains and dividends and interest.) Or do they simply want to cripple government social programs for decades to come by forcing future generations to service massive amounts of debt? Neither option is palatable, but, alas, neither seems absurd.