David Lee / [email protected]
he tax cut President Bush leveraged through Congress last week will put money in the pockets of many citizens, but economists are sharply divided on its long-term impact upon the nation’s economy.
Mr. Bush, an energetic cheerleader for the tax cut, calls it a “jobs and growth package” that will “boost the nation’s economy and create jobs.” In his radio address, the President stated that the bill will “strengthen our nation’s economy by reducing income tax rates, lowering the marriage penalty, increasing the child credit from $600 to $1,000, increasing the expense allowance for small business investment, and significantly reducing taxes on dividends.”
The child credit increase will take place immediately and about 25 million families with children will be receiving checks of up to $400 per child this year. Reduced income tax rates will lower taxes for an estimated 136 million Americans, including 23 million small business owners who pay taxes at the individual rate.
The Republican-led Senate approved the $330 billion measure, with an additional $20 billion included for aid to cash-hungry states, by a 51-50 vote, with Vice President Richard Cheney casting the decisive tally.
The conservative Heritage Foundation’s Center for Data Analysis ran the tax policy changes through a model used by Fortune 500 companies and government agencies and came up with these figures:
– A $73.4 billion higher Gross Domestic Product(GDP) in 2004 and an average gain of $34.7 billion between 2004 and 2008;
– Over 800,000 new jobs in 2004 and an average job increase over the 2004-2008 period of 412,000;
– The unemployment rate will drop by over 1 million between 2003 and 2005;
– And significant increases in the personal savings rate and investment.
Bunk, says Paul Krugman, Princeton economist and constant Bush critic in his opinion columns. Writing in the 5/27 New York Times, Krugman ridicules the Bush tax cut. Quoting the “normally staid Financial Times as saying, “The lunatics are now in charge of the asylum,” Krugman goes on to state, “Indeed, the legislation is doubly absurd: the gimmicks used to make an $800-billion-plus tax cut carry an official price tag of only $320 billion are a joke, yet the cost without the gimmicks is so large that the nation can’t possibly afford it while keeping its other promises.”
In order to reduce the 10-year cost of the tax package, some of the bill’s provisions are supposed to expire “sunset” later in the decade. But Democrats and moderate Republicans are concerned that these provisions will be extended. As Rep. Charles Rangel, top Democrat on the Ways and Means Committee noted, “By resorting to budget gimmicks to hide the true cost of their least popular tax plans, the Republican leaders are not just being irresponsible, they are trying to put one over on the American people.”
Republican moderate Senator Lincoln Chafee of Rhode Island also stated his concern before the final tax cut vote, “The $6 trillion debt, the cost of the War on Terror, and the cost of Social Security and Medicare as baby boomers retire cause me grave concern. The interest alone on the national debt is scheduled to rise to $250 billion a year. We must restrain spending and hold the line on tax cuts to return the country to a balanced budget. This will give American consumers the confidence that we have our house in order.”
Democrats wanted a tax cut that produced more income for lower and middle income Americans. Moderate Republicans are worried about the ballooning federal deficit. But the Bush machine pressed through a package skewed toward the rich, on the trickle down theory that they will invest their money and help grow the economy, and instead of deficits there will be economic prosperity.
George W. Bush’s father once called this “voodoo economics.” Some critics believe that the political progenitor of George W. is really Ronald Reagan and that Bush 43 is bent on seeing the Reagan revolution through its real conclusion: less tax revenue leading inexorably to smaller government.
As the federal deficit rises, investors may well stop lending money to the US government. Then comes the crunch point: either taxes go up again or the programs we know as the social safety net will have to be shredded Medicare, Medicaid and Social Security.
Krugman, for one, believes that this is the Bush plan, because “people now running America aren’t conservatives: they’re radicals who want to do away with the social and economic system we have, and the fiscal crisis that they are concocting may give them the excuse they need.”
This is no simple academic debate, then, but one with far-reaching implications for all Americans. Whether one agrees upon the Bush agenda or not, it portends significant changes in the American way of life. Rigorous discussion about these policies is clearly in order because what may be short-term benefits for you may look very different to your children ten years from now.