We've all heard this one: The definition of insanity is trying the same thing more than once and expecting a different outcome. The axiom comes to mind as President Bush's tax cut wends its way through Congress.
Bush wanted a tax cut of $726 billion over 10 years. Fortunately, he's not going to get that big a cut, not even from his fellow Republicans. The Republican-dominated House of Representatives passed a tax cut of $550 billion; the Senate is getting set to vote on a cut of roughly $350 billion.
It makes one wonder if Bush was paying attention in the '80s when Ronald Reagan and Bush's dad were trying the same thing. Reaganomics, or "supply-side" economics, was cutting taxes for wealthier Americans in hopes that the money would "trickle down." At the same time, Reagan cut social programs and spent unprecedented amounts of money on the military. Sound familiar?
It didn't work under Reagan, and it won't work now.
Bush's plan assumes a lot, and it misses the point. It relies heavily on cutting taxes on corporate stock dividends, which, again, favors the wealthy, in addition to senior citizens-those who have the most money in the stock market. Bush's economic people say the dividend tax cut will give the stock market a shot in the arm, and in turn raise consumer confidence. Then consumers will spend more, and the result will be more jobs. More jobs translate into a more robust economy.
Problem is, all of this has to happen for the scheme to work. Again, it's assuming a lot. It's assuming too much.
The economy does not rise and fall solely with the stock market. Smart economists will tell you that consumer confidence has much to do with the national debt. If people feel the national debt is rising out of control, they're not going to be terribly confident, and they're going to be less likely to spend their money. Without a doubt, the national debt, especially if Bush gets even half of his tax-cut wish, is spiraling out of control. When you add on Bush's other tax-cutting priorities, such as making his 2001 tax cut permanent, and include increases in interest payments on the ballooning national debt, the cost of Bush's economic proposal skyrockets to $2.7 trillion by 2013, according to the nonprofit Center on Budget and Policy Priorities.
Add that to the current $6.4 trillion debt, and what you have is economic disaster for future generations.
Yes, there is tax relief for the middle class in Bush's plan, but when you spread it out, individuals and families won't get enough back for it to matter. That little bit of money will be put in the bank. As we said earlier, most of the relief goes to the wealthy. When that happens, the money gets hoarded, and the gap between the rich and poor widens. That is what Republican economic policy is all about.
Meanwhile, the states are a combined $80 billion in the red. Their legislatures are in the process of making horribly painful choices, which will include combinations of tax hikes and spending cuts. Social-services advocates across the nation are lobbying desperately to keep funding for their programs intact. Local governments are trying to keep cops and firefighters on the payroll by reducing library hours, curtailing park upkeep, raising fees and taxes wherever they can and deferring maintenance on basic infrastructure.
Bush's plan looks like little more than a costly handout that won't reap dividends. In his piece in the May 12 New Yorker , John Cassidy argues that even if Bush's desired tax cut creates as many jobs as he says it will, each of those jobs would cost the federal government $550,000—and it would be cheaper to simply give private industry money to hire new workers or give money to the states for job-creation programs.
The most upsetting part of all this, from our view, is that the havoc Bush's policies will no doubt wreak won't be seen until long after his recent, made-for-political-commercial jet-fighter landing gets him elected to a second term, during which he'll undoubtedly cause even more economic chaos.