Money for Millionaires, Red Ink for Our Children

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Money for Millionaires, Red Ink for Our Children
by James Hall, Senior Associate Editor

April 22, 2003

"Leaning Left"

James Hall Ironically on the same day that our capable-and expensive-armed services announced the end of major conflicts in Iraq, the Bush administration went on the offensive against their future funding. By guaranteeing a sea of red ink for as far ahead as the eye can see, the administration is creating a future in which all federal programs, including those that protect our national security, will be in jeopardy.

The Bush tax plan pits the deep pockets of millionaires (who'll get 47% of his proposed $726 billion dollar tax break) against the future solvency of Social Security and Medicare. It adds additional budgetary woes to the states who fund and train our first responders and who are the first line of defense against economic troubles. Worse still, it mortgages our economic future and the future of our children by placing us in deep, increasing national debt.

The administration's economic team has made some good arguments for tax fairness and economic efficiency to support their plan. Yes, it makes sense to ease the difference in taxes that married people pay, the so-called "marriage penalty." It makes sense to stop double taxation on corporate dividends and tax them only once, thus encouraging corporations to pay out dividends instead of using their profits for risky takeover and merger schemes.

Unfortunately, the result of righting these wrongs is still economic disaster down the road, because there's no increase in other revenues to make up for the shortfall that will result, a shortfall the Congressional Budget Office estimates to be $1.82 trillion over the next ten years.

The administration is pushing this plan as an economic stimulus package, but it isn't. Stimulus packages typically last a year or two, using deficit spending to prime the economic pump and then reverting back to revenue collection. But the Bush tax cut takes out revenues over ten years, far after any planned recovery would take effect.

The Bush tax plan fails in a fundamental way because it doesn't pay its bills. The plan will add trillions of dollars to the national debt at a time when it has increased government spending for national security and homeland defense, and when there's an anticipated need to increase spending to make Social Security and Medicare solvent in the future. Robbing the future to create a more rational tax structure in the present isn't fair either; but that's just what the Bush plan does.

The impetus for this red ink policy is a dubious economic theory called supply-side economics. Some conservatives (not fiscal conservatives) tout Ronald Reagan's supply side budgets of the 1980s for America's prosperity back then. But anyone can look prosperous-on the surface, anyway-if he spends more than he brings in as income.

Unfortunately, that bill has to be paid, sooner or later. The credit card balance that Reagan ran up was ultimately paid by his Vice President, George H. W. Bush, who went through an economic recession and lost his job despite a brilliant Gulf War and foreign policy record. Now his son wants to use the same card and stick his successor-and us-with paying the bill after he leaves office.

Pie-in-the-sky supply-siders tell us that the increased economic activity spurred by tax cutting brings about eventual balanced budgets and even surpluses. But that never happened under Reagan. The federal budget deficits only increased until President George H. W. Bush and President Bill Clinton fought for and got tax increases to restore solvency to the budget. The result was eight years of prosperity and eventually some actual budget surpluses that were used to start paying down the Reagan debt.

Unfortunately, we had barely begun paying down that debt before George W. Bush came along and gave the revenues away again.

The President is fond of telling us that it's our money that goes to taxes. Well, Mr. President, it's also our debt, one we agreed to when we sent our representatives to Washington and told them to build our national infrastructure. And it's a debt that we and our children will be responsible for paying, whether we like it or not.

Make no mistake, a growing national debt will cost us. It will cost us billions in interest costs to pay for bonds to fund the debt. It will create upward pressure on interest rates that affect every American who uses credit cards or has a car loan or a home mortgage, and every business, small or large, that has to borrow money for expansion.

These interest rate increases are like hidden taxes, shifting the burden from the wealthiest Americans, who can loan out their money at high interest, to the middle class and the working poor who must pay more to borrow it. Under the high cost of borrowing, business expansion will slow and consumer spending will drop because consumers are making interest payments instead of buying new things.

A huge debt also invites risky financial government policies, like printing too much money, which itself creates destructive inflation, or cutting essential services like the national defense and the maintenance of the nation's infrastructure of roads, airports, and bridges.

The Bush tax plan also has the unintended consequence of reducing state taxes, since many states tie their tax rates to federal rates. Already state governments find themselves about $70 billion short of their requirements to balance their budgets. Unlike the federal government, states must balance their budgets and will have to cut services or raise taxes to meet their constitutional requirements.

If the Bush economic team were serious about building a strong American economy, now and the future, they would balance their tax cutting in the short term with long-term revenue increases that would lead to balanced budgets once the current economic turndown is over. As it stands, it appears they want to write a great big refund check to the millionaires now, and let our children pay for it tomorrow. ***

James Hall
Orlando, FL USA

Photo of the author courtesy of staff files