Tax Cuts Leave Bush With No Excuses, No One to Blame
Love ’em or hate ’em, President Bush’s new tax cuts do two things: deprive him of any chance to blame Democrats if the economy doesn’t recover, and set up a make-or-break test of the efficacy of supply-side, trickle-down Republican economics. [IMGCAP(1)]
Congress passed cuts nominally limited to $330 billion over 10 years, a total Bush once derided as “itty bitty,” giving him a potential excuse if the economy remains weak.
But, as everyone now knows, the size of the cuts is likely to be greater than the $726 billion Bush originally sought — and which, he promised, would create 1 million new jobs by 2004.
Colleagues say it was Sen. Don Nickles (R-Okla.) who recommended using “sunsets” — early expiration dates — to shoe-horn huge long-term tax cuts into the $350 billion box mandated by moderate Senators.
Assuming that Congress extends the cuts, the liberal Center for Budget and Policy Priorities calculates their real cost at $800 billion to $1 trillion over 10 years — or $1.1 trillion to $1.5 trillion, counting increases in interest payments on the federal debt.
In any event, when Bush signed the bill last week, he hailed it as a job creator. That means there can be no excuses and no blaming someone else if the economy doesn’t rebound before next year’s election.
Democrats, of course, attack the cuts as economically ineffective, fiscally irresponsible and unfairly skewed to the rich.
Polls indicate that the public is deeply skeptical about the Bush cuts. According to a Gallup poll released last week, 45 percent of U.S. adults think the cuts are a good idea, while 46 percent say they’re a bad idea.
According to a Time-CNN poll, by 57 percent to 32 percent, voters believe the cuts will benefit the rich more than the middle class. By 50 percent to 39 percent, they think the cuts will stimulate the economy. But, by 47 percent to 40 percent, they think the federal deficit will grow “to unacceptably high levels.”
Public attitudes may improve soon when some 25 million families receive checks for $400 per child as a result of the increase in the child tax credit, and when all income-tax payers notice less money being withheld from their paychecks as a result of rate reductions.
On the highly political question of “fairness,” there’s no question that, in terms of dollars in peoples’ pockets, the Bush cuts benefit the wealthy more than lower-income groups.
Arguing for his cuts as late as last week’s signing ceremony, Bush claimed that 91 million taxpayers would receive an average of $1,126 in 2003. But that’s a misleading claim, as CBPP demonstrates. It “averages” the $93,350 tax cut for millionaires with the $189 for those with incomes between $20,000 and $30,000.
Figured as a percentage tax reduction, though, the Bush cuts can be considered “fair.” Millionaires will get an 11.5 percent reduction in their taxes, according to Treasury Department estimates, while the $20,000-$30,000 group gets a 20 percent reduction.
Those with incomes above $100,000 have been paying 72.4 percent of all taxes. After Bush cuts, they’ll be paying 73.3 percent.
While fairness is a hot debating topic, the real tests of Bush’s tax policies are: Will they boost the economy before the 2004 election — and, if Bush is re-elected and his policies survive, will they fulfill the supply-siders’ promise of continuing prosperity?
For Bush, the new cuts have the virtue of being front-loaded and economically stimulative, with $208 billion of the total taking effect in 2003 and 2004. The package also contains $20 billion in aid to the states.
Whether or not the Bush cuts boost the economy between now and mid-2004, Democrats are in the political bind of calling for their repeal — i.e., tax increases — which is not a popular position going into an election.
Democrats legitimately argue that the tax cuts deprive the government of money that could be spent on education, health care or more aid to the states, but that stance deprives them of the ability to blame Bush for rising budget deficits.
So, politically, Bush seems likely to emerge the short-term winner in the tax wars — setting up a climactic (and risky) test of whether supply-side GOP economics works in the longer term.
Supply-siders contend tax cuts will stimulate economic activity so much that they’ll more than pay for themselves in increased government revenues, wiping out anticipated deficits.
They claim it was President Ronald Reagan’s tax cuts that encouraged the investments and productivity increases that powered the economy through the 1990s, raising incomes for all groups, erasing deficit projections and producing surpluses that have since disappeared.
Democrats, of course, are convinced that’s all hokum. They say Reagan’s cuts led only to deep deficits that President Bill Clinton diminished with tax increases, setting off the 1990s boom and making the surpluses possible.
Bush intends to push supply-side theory to the limit, offering up one tax cut after another. If he’s right, the economy could produce enough wealth to pay for many of the programs Democrats advocate.
If he’s wrong, however, deficits will get deeper, interest rates will rise, the economy will weaken and the country will not be able to maintain Social Security and Medicare benefits for baby boom retirees.
This is a wild ride Bush has set in motion. When it’s over, we’ll know a lot about economics. We’ll also either be a lot richer as a country — or in disastrous shape. The credit, or blame, will belong to Bush.