The Bush Economy

Written: 02/17/2003
Published in The People’s Civic Record, a monthly, Wilmington, NC based progressive magazine.

“To bring our economy out of recession, we delivered the largest tax relief in a generation,” Bush touted in his State of the Union Address. It was certainly the largest tax relief to the wealthiest Americans in a generation and did not turn the economy around as promised. The U.S. now has some of the greatest deficits ever and it looks like deficits as far as the eye can see into the future.

Becoming the only president ever to suggest cutting taxes going into a war, Bush proposed that “all the income tax reductions set for 2004 and 2006 be made permanent and effective this year,” and claimed that “Ninety-two million Americans will keep – this year – an average of almost 1,100 dollars more of their own money.”

With so much of the tax breaks going to the richest Americans, this skews the “average” and misrepresents the truth.

The tax cuts will add over $90,000 to the income of millionaires, $400 to those making $30,000 to $50,000, and only about $58 to those making $10,000 to $20,000.

As someone recently said, “If Bill Gates were to walk into a roomful of bums, the ‘average’ income of everyone in the room would skyrocket — but you would still have Bill Gates and a roomful of bums.” Gates, by the way, would receive a $38 million tax cut under Bush’s proposal, while almost half of all tax filers would receive less than $100.

Bush’s first tax cuts will cost more than $1.3 trillion in revenue over 10 years. This new proposal pushes the costs to $2 trillion.

Sen. Olympia Snowe, R-Maine, called Bush’s tax cut plan “exorbitant.”

Bush’s budget runs up deficits over $300 billion a year, even without a war on Iraq, estimated at $50 to $60 billion, or the supplemental request of $15 billion to fight terrorism.

With tax collections going down and federal expenditures going up, Bush has become a spend but don’t tax Republican.

According to the Associated Press, “The annual spending blueprint, covering the budget year that begins next Oct. 1, appeared carefully tailored to provide maximum political lift for the president as he seeks re-election. It offers the biggest bang for the buck over the next year while delaying until after the November 2004 elections the heaviest costs.”

Bush has called for a defense budget of $380 billion, up 4.2 percent from this year. But that doesn’t include possible war with Iraq, which Budget Director Mitch Daniels has said could cost an additional $50 – $100 billion. It also doesn’t include an expected supplemental administration request for $15 billion to fight terrorism.

Rep. Charles Rangel, D-N.Y., the top Democrat on the House Ways and Means Committee remarked, “The Bush administration does not have a budget. It has a 308-page press release … pure P.R. with color pictures of little children and brave soldiers designed to distract the American public from the truth.”

Stephen Moore, president of the Club for Growth, a tax-cut advocacy group, commented, “This budget, which I find a lot to like in, is excessive in terms of how much money it’s willing to spend and how many new government programs it would create to solve every problem, up to and including AIDS in Africa. Bush philosophically believes you can do good things with government money. That’s very different from the Reagan theme that government isn’t the solution, it’s the problem.”

To pay for tax cuts, increased homeland security, and the increased spending on defense – which now has risen to levels greater than all other countries combined – Bush has proposed cutting spending in hundreds of other programs that help those that stand to benefit the least from the tax cuts, including cuts in Medicaid benefits to the poor and disabled, school lunch programs, vocational education, literacy programs, rural development programs, and veteran’s benefits.

Norman Ornstein, scholar at the American Enterprise Institute said, “There’s no doubt that the president’s budget is affected by the election-year cycle. It’s also a budget that has gone through yeoman’s efforts to manipulate it so that it minimizes the real costs and maximizes the benefits.”

David Wyss, chief economist at Standard & Poor’s DRI, warned, “We’re looking at deficits forever.”

Under Bush stocks have lost almost $5 trillion of value, unemployment is up more than 40 percent (to 6 percent, from 4.2), huge projected federal-budget surpluses have turned into huge deficits, and the dollar has fallen 13% against the euro.

Bush says he wants to “strengthen the economy by treating investors equally in our tax laws. It is fair to tax a company’s profits. It is not fair to again tax the shareholder on the same profits. To boost investor confidence, and to help the nearly 10 million seniors who receive dividend income, I ask you to end the unfair double taxation of dividends.”

Doug Henwood, editor of the Left Business Observer, commented, “Bush is saying that he wanted to end the double-taxation of corporate profits, first as corporate income, second as dividends. However, corporations are legally distinct entities. If he wants to get rid of that then we should be able to confiscate the personal assets of any individual who owns stock in a bankrupt company. Also, he is not ending ‘double taxation’ for the vast majority of Americans who own stock. Most stockholders hold stock through retirement accounts. Under the Bush plan, the dividends earned in these accounts will be subject to taxation as normal income at the point when it is withdrawn.”

Henwood also asks, “Is it fair that New York State taxes me on my gross income, which the federal government has already taken a piece of? Is it fair that it taxes my income, then taxes the income of the grocer I buy my food from, and then the income of the farmer that grows the food? All income is double taxed — but it is only taxes on the income of the very rich people that move Bush to action.”

Bush believes that “lower taxes” will bring “greater investment” and “help this economy expand” bringing “more jobs” and “higher revenues to our government.” Since the “lower taxes” will benefit the wealthiest Americans, he is counting on the rich to invest in America. This is essentially the discredited “trickle down” theory of the Reagan era, which left the country with huge deficits. The fallacy in his logic is that the rich don’t have to invest in America – they can invest outside the country, where labor is usually cheaper.

According to Ray Boshara at The Atlantic Monthly, the top 20% of American households earn 56% of the nation’s income and have 83% of the nation’s wealth, while the top 1% earn 17% of national income and control 38% of national wealth. He contrasts this with the bottom 40% of Americans earning 10% of the nation’s income and owning less than 1% of wealth, or even the bottom 60% earning 23% of income and less than 5% of wealth.

He says that:

“There is also the fact that wealth, like debt, is self-replicating. Compound interest turns wealth into more wealth and debt into more debt. Other things being equal, those with interest-bearing savings accounts will end up richer after a year, and those who must pay interest on credit-card or consumer household debt will end up poorer. Thus even a neutral government policy toward wealth and asset building will end up exacerbating the wealth gap. But over the past several decades policy has hardly been neutral. The federal government currently has two distinct policies: asset-building incentives for better-off Americans (in the form of more than $300 billion in tax benefits each year for such things as home ownership, business development, college education, and retirement saving)—and income support for the rest.”Tax breaks that encourage asset building are smart policy—except that more than 90 percent of the benefits of the two largest programs (which support home ownership and retirement saving) go to the wealthiest 55 percent of taxpayers. This enormously regressive policy thus excludes people who don’t earn enough to enjoy the benefits built into the tax code. In addition, many poorer Americans face limits on the assets they can own if they want to continue receiving necessary food, health, and other income-support assistance.”

Some of problems that make the United States “more unequal than at any other time since the dawn of the New Deal” and “the most unequal society in the advanced democratic world” are the “downward pressure[s] that globalization has exerted on wages; and changes that have made the tax code less progressive and more friendly to the better-off,” he says. So, is Bush’s assault on progressive taxation likely to help or hurt the nation’s trend toward plutocracy? Will massive tax cuts for the richest among us, while spending goes through the roof, change the country’s slide into bankruptcy?

Bush thinks so, if the wealthy will just invest in America, trusting in the integrity of American business.

I wouldn’t bet on it.

Bush claimed that, “To insist on integrity in American business, we passed tough reforms, and we are holding corporate criminals to account.”

With the Securities and Exchange Commission retreating from even the mildest reforms and the economy looking bleak, it doesn’t look like a smart time to invest.