The Perils of the Bush Tax Plan
BJ Strew

To many of us, if not most, tax cuts shimmer with the qualities of a panacea. After all, we have been conditioned to instinctively view taxes in a simplistic, sort of Manichean way: cuts are good, increases are bad. No longer can Americans reconcile the fiscal reality of taxation with their need for vital civic services. So nowadays, at the mere articulation of the phrase “tax cuts,” we heave a sigh of relief.

This sigh of relief is a reflex of which the Bush administration—and the neocon Svengalis suspended above it—has been long aware. And it is a reflex of which they have been long willing to exploit. Last May, they exploited it, as Congress approved Bush’s $350 billion tax cut plan by the slimmest of margins. But the Republicans’ attempt to rewrite the tax code scarcely deserved the narrow victory it eked out.

Why? In short, the plan is an immense sham, dressed up with stirring (but hollow) rhetoric, buttressed by rickety partisan economics that top economists wouldn’t touch with a ten-foot pole. We will return to the critique in depth, but not before appraising the economy prior to the arrival of Bush fils on Pennsylvania Avenue, at the eve of the century.

Recall first that Bush pere passed on to Clinton a swollen deficit: 8% of the GDP. (Not to mention the worrisome legacy of Reaganomics.) At his second term’s close, Clinton had steered the budget safely out of the red, leaving Bush fils a hefty surplus. On the other hand, he inherited the beleaguered Social Security and Medicare systems. On top of that: an economy on the wane, a stock market bubble about to burst, and a government on a borrowing binge of $1 billion a day from abroad.

In other hands, the surplus might have been used to repair our aging infrastructure, to bolster Medicare or Social Security, to lessen the cost of prescription drugs, and so on. But the surplus, to our lasting dismay, was not in other hands—it was in Bush’s, in the Republicans’, and thus has been utterly wiped out by tax cuts which Bush, like Reagan, implemented fresh after inauguration. As he did then, Bush marshals the same slippery logic to prop up his latest tax plan.

Foremost among the plan’s problems is that its end—the near-term stimulation of our economy—does not square well with its means. As expected, there is a wide consensus that the Bush tax plan aims to restructure the tax code permanently—not, as it claims, to spur job creation and economic growth in the short term.

It was only as an eleventh-hour concession to ease the plan’s approval that the White House capped the dividend tax cut with a four-year lifespan, rather than setting it in stone, as a permanent change. Some charge that it is hardly a concession: it is, after all, routine for the GOP to make an allegedly brief cut only to renew it, decrying its expiration as a tax increase. Then it is not only a tellingly reluctant compromise, but also a crafty means to distort the plan’s true cost.

As a tax reform, economists from the Economic Policy Institute charge that the dividend tax cut—the feeble centerpiece of Bush’s entire plan—is “misdirected at individuals rather than corporations, is overly complex, and could be, but is not, part of a revenue-neutral tax reform effort.” They do not bother with the so-called “double taxation” that Bush railed against to win popular support for the cut.

But some explanation is helpful here, if only to better convey to the lay person the degree to which Bush’s tax plan sinks into hypocrisy. First of all, the wealthy will benefit disproportionately: they hold the lion’s share of dividend-paying stocks. Second, a corporation is a distinct entity under law, not a cash medium, meaning that taxing a corporation is akin to taxing an individual. And finally, were Bush sincerely devoted to righting the alleged injustice of double taxation, he would have disallowed untaxed dividends from corporations already sheltering their income from taxation; instead, savvy corporations can pass on tax-free income to the undeserving rich.

It should be suitably potent testimony when ten Nobel prize-winning economists and 400 other economists converge in opposition to Bush’s tax cut plan, precisely for the litany of reasons named above.

Describing the proposed tax plan, one of the aforementioned laureates, the prominent economist Joseph Stiglitz, said it best: “Seldom have so few gotten so much from so many.” The Bush plan is about as regressive as it can possibly be; were it entirely up to Bush, it would be exactly as regressive as it could possibly be. But Reagan’s legacy of trickle-down trickery from the 1980’s has been long discredited: cosseting the cosseted is bad economics. It just doesn’t work in the real world.

Well, on second thought, that depends on who you ask. According to Bloomberg News, while half of all taxpayers would receive $100 or less, and two thirds $500 or less, Bush himself would have saved $44,500 on his 2001 tax returns, and Cheney $326,555. It works just fine for them. But for working Americans, the only burden which the Bush plan relieves is the weight of their wallets.

And what of the deficit into which the Bush tax plan plunges us ever deeper? The administration confessed that the budget deficit may reach $455 billion this year, the highest in over a decade. But what about next year? $475 billion, they project. Let us not forget that the 2000 budget surplus was $236 billion. An avowed advocate of the “starve the beast” doctrine, Bush deemed the evaporation of the surplus as “incredibly good news.”

Good for whom? Who will suffer the long-term upshot of the choice to cut taxes, in a time of war and mounting deficits? Of course the draining of government surpluses means the cutback of the “Great Society” and “New Deal” apparatus that the Bush administration so often derides as wasteful: Social Security, Medicare, Medicaid. Put another way, the working Americans’ safety net in times of recession is being steadily drawn out from under them by the GOP. And this is aside from the phenomenon of vanishing funds—from public schools, police and fire departments, and so on—that his tax plan and supply-side policies incur. Of course, it matters little to Bush that the next generation will be saddled with debt, as the country pays dearly for his plan on the long term. For him, it’s another notch in the Republican belt.

The next President—Bush undeposed? Heaven forfend!—has at his disposal a broad array of reasons favoring the categorical repeal of Bush’s tax cuts. In sum, the tax cuts are indefensible, on moral and economic terms, as the foregoing demonstrates. Working Americans, the men and women who enable the healthy operation of our country at the elemental level, deserve—at least—as much attention from our government as the wealthy.

Still there are those so immodest and obstinate that they attempt to defend the indefensible, contra ten Nobel laureates, firing the incendiary rhetoric of “class warfare” at critics of Bush’s tax plan. Predictably, this rhetoric is fueled less by logic and empirical proof than by self-serving myths; crying “class warfare” provides a simple way to sidestep authentic argument—an escape route for Republicans.

Next time Bush and his brazen GOP apparatchiks hawk their faux-Keynesian snake oil, defer your sigh of relief, and reflect on the same question that our leaders consistently neglect: Is this the best thing for America as a whole, for the long term? If so, by all means, sigh away. If not, voice your dissent with all the fiery vigor it deserves, acting likewise at the ballot box.