It's Still The Economy, Stupid
History may be repeating itself, this time as tragedy.
Thursday, May 29, 2003
We all remember the phrase, "It''s the economy, stupid," made famous by political strategist James Carville, who hung it on a sign in Bill Clinton''s Little Rock campaign office to keep everybody "on message" in the 1992 election. And it worked: President George Bush, soaring in polls after a victorious war against Iraq, was stunningly defeated because he was unable to effectively manage or spark a recession-battered economy stuck in a "jobless recovery."
Today it''s possible that history may repeat itself. Bush Jr. is in similar straits as his dad, soaring in polls after a victorious war against Iraq but unable to effectively manage or spark a recession-battered economy stuck in a jobless recovery. But where his "read my lips" father was famously forced to raise taxes, the son is stubbornly sticking to an extreme conservative mantra: Spend more money on the military while cutting taxes for the wealthy and running a huge budget deficit.
"With a robust package of at least $560 billion dollars in across-the-board tax relief, we will create more than a million new jobs by the end of 2004," the president declared in a recent radio address.
But the tax cut is actually not popular. Half of those asked in a recent NY Times poll said the cuts were unlikely to create jobs, and 58 percent agreed that they did not expect to find any new money in their paychecks. In addition, unprecedented organizing against the tax plan has stymied the Bush administration to some extent, as members of the Fair Taxes For All coalition, featuring progressive organizations and labor unions, have blitzed Congress and put TV and radio ads on the air across the country, particularly in districts of key members of Congress.
Yet, despite vigorous organizing efforts across the country by unions and concerned citizens fearing the impact of the plan, Bush is likely to get most of what he wants. The president is aggressively pushing the $560 billion tax cut, already passed by the House. The Senate voted last Thursday for a smaller, $350 billion tax cut, and the final outcome is decided in Conference where the two bills are reconciled. But the White House will wield a lot of influence in the endgame, so look for the cut to be closer to the numbers Bush is now seeking.
The activist groups point out that the current budget situation is a far cry from two short years ago, when politicians in both parties pledged to treat the Social Security reserves as if they were in a "lockbox." The rest of the budget was in surplus, and there was a projected unified budget surplus of $5.6 trillion for the coming decade. Now the fiscal picture has been reversed, with the federal government spending, not saving, the Social Security surpluses while it is about to run record-high deficits.
The Administration itself projects that, under its current budget, the national debt will climb to more than $5 trillion within five years - at the very same time the baby boomers begin retiring. And that is without counting the uncertain costs of war and its aftermath.
The Nation Needs More Jobs
There is no question that our country needs more jobs. Unemployment is at 6 percent and 48,000 jobs were lost just in April. The Economist reports that, "500,000 jobs have disappeared in the past three months pushing the total lost under Bush junior over two million."
"Long term unemployment at 1.9 million, is the highest in 10 years, and those numbers do not include the large numbers of discouraged workers (people who want work but have given up looking) and the larger number of underemployed (those who are working, but not as much as they would like to)."
But as John Cassady notes in The New Yorker, the link between tax cuts and jobs is decidedly murky. "Two years ago...President Bush persuaded Congress to pass the biggest tax cut in a generation. But since then, a million and a half jobs have disappeared. By contrast President Clinton raised taxes to reduce the budget deficit, and the economy created more than 20 million jobs."
Additionally, a significant amount of the president''s tax cuts would come in the form of abolishing or cutting taxes on corporate dividends.
Cassady adds: "The primary recipients would be rich people and senior citizens, since they own most of the dividend-yielding stocks. Under Bush''s original plan, Sanford Weil, the chairman of Citigroup would get a $6 million tax cut; Vice President Dick Cheney would save about one hundred thousand dollars. The dividend plan might persuade yacht builders and assisted living communities to hire some extra help, but it won''t do much for the rest of the nine million unemployed."
New York Times columnist and distinguished economist Paul Krugman adds, "The extent to which the House bill favors the rich is breathtaking: the typical family will only get a tax break of $217 next year, but families with incomes above $1 million would get an average of $93,500 each."
The Center on Budget and Policy Priorities estimates that over the next decade, 27 percent of the tax cut would go to the very high income families that comprise a mere 0.13 percent of the population.
As Bob Burnett has noted on Alternet.org, "Almost no reputable economist supports this Bush plan. Joseph Stiglitz, former chairman of the Council of Economic Advisers, described the tax cuts as leading to ''reductions in job growth relative to what they otherwise would be.''"
Others claim that the only accomplishment of the tax cut will be to stimulate more economic inequality.
The effects of the current budget crisis on the states is unprecedented. States are facing their biggest economic crises since World War II. At this moment, as Cassady describes, states "are being forced to fire teachers, troopers, and health workers. Parks, museums and libraries are closing. College tuition is rising and scholarships vanishing. Meanwhile, taxpayers will be paying out billions of dollars to reconstruct Iraq."
Just how much the takeover of Iraq will cost is still unknown, but a range of experts calculates the cost at $100 billion for the first 12 months and close to $286 billion over the next five years.
Meanwhile, defense contractors and giant corporations like Bechtel and Halliburton, where Vice President Dick Cheney was CEO, are reaping huge contracts to rebuild Iraq. The CEOs of defense contractors are cleaning up as well. Just how much is detailed in a recent report by Chris Hartman and David Martin for United for a Fair Economy. In one finding, defense contractor CEO pay rose 79 percent from 2001-2002, while overall CEO pay only climbed 6 percent.
As it turns out, the $100 billion being spent on Iraq is essentially the amount required to bail out the states this year from their enormous financial crisis, to cover their combined revenue shortfall. The sum would also provide health care for all the uninsured children in the United States for at least five years.
Bush Wants to Starve States
Yet starving the states is a major part of the Bush strategy. As reporter Elizabeth Drew describes, "About a year before the 2000 election, Karl Rove [Bush''s White House political strategist, the architect of every Bush political victory, and the visionary behind the virtual total takeover of Texas by the Republicans] made an alliance with the anti-tax lobbyist Grover Norquist, probably the most influential figure in organizing the American Right. This is a partnership based on the shared goals of reducing taxes and shrinking government. In April, when asked about the fiscal crisis facing most of the states, Norquist responded, ''I hope a state goes bankrupt...We need a state to be a bad example, so that the others will start to make the serious decisions they need to get out of this mess.''"
One of the big fears of the Bush tax cut is its impact on future generations, families and children. Even N. Gregory Mankiw, recently nominated as Chairman of the Council of Economic Advisors, says in his popular textbook "Principle of Economics," that when government runs a budget deficit it "pulls resources away from investment in new capital and thereby depresses the living standards of future generations."
The Bush Administration may well be unsure if their plan will produce the promised jobs, which is why they are now talking about the overall effect of the tax cut on the stock market, under the theory that if the market goes up, investment will be encouraged and jobs will appear. Yet to have the entire economic policy built on a second questionable tax cut, mostly benefiting the wealthy, and hoping the psychological impact will carry the day seems like a new version of voodoo economics.
According to the New York Times poll, "81 percent of the respondents said that the country should make sure that Americans have access to health care, rather than cut taxes. And 58 percent said the priority should be to reduce the deficit."
Another recent survey reveals that the public may have had its fill of tax cuts. By more than two to one, people would prefer more spending on education, health care, and Social Security to Bush''s proposed tax cut, according to ABC News. As Ruy Texiera, writing in the Washington Monthly, notes, "A closer examination of the general apathy toward Bush''s latest cuts reveals a remarkable fact: More people now think the amount of federal income tax they pay is ''about right'' (50 percent) than think it is ''too high'' (47 percent). According to Gallup, the last time the public felt this good about paying their taxes was March 1949. Perhaps this wasn''t the ideal time to propose a large, deficit-ballooning tax cut for the rich after all."
Texiera continues: "It is an article of faith in the GOP these days that there is no such thing as a bad tax cut. Indeed, this extraordinary concept has overshadowed the ''compassionate conservatism'' Bush touted in his 2000 campaign. So the Republicans are betting, at least domestically, on the political appeal of tax cuts."
Coalitions fighting the tax cut emphasize that if Congress accepts the plan, "The national debt will skyrocket, leaving future generations to pay the bill. The economy will suffer long-term damage. Important programs will be shortchanged now--the President''s budget already cuts many vital programs to make room for the tax cuts--and the country''s ability to address its top priorities, now and in the future, will be permanently impaired."
In the end, the big question is not whether Bush will push his tax cut through, but whether it will have any significant impact on the job problem in the United States. If it doesn''t, the Democrats could run against the tax cuts and gain ground for 2004.
Don Hazen is the executive editor of AlterNet.org.