Washington,
D.C. In the past year, millions
of Americans have been badly hurt by billion dollar losses in the securities
markets. Tens of thousands have lost their jobs. Forty million lack
adequate health insurance. For fiscal 2003, 31 states are encountering
budget deficits totaling $17.5 billion, according to the National Conference
of State Legislatures. When asked how he proposes to reinvigorate America's
struggling economy, the President routinely calls for more tax cuts.
Among the tax breaks most popular among Bush Republicans are a reduction,
if not the elimination, of the capital gains tax and a boost of the
write-off for new capital investments from 30 percent to as much as
60 percent.
High-tech and manufacturing industries are lobbying for accelerated
depreciation. They argue that immediate expensing for business purchases
would substantially decrease the cost of capital. A similar result could
be produced if Congress scrapped the current depreciation schedules
which date back to 1986. New computers, for example, are still to be
depreciated over five years although they now tend to lose half of their
value after one year.
Apparently tutored by intuitively optimistic supply-side economists,
Mr. Bush assumes that more tax cuts will automatically increase consumption
and production, thus providing the tax income needed for substantial
increases in military expenditures and reductions in the growing national
debt. Professor Laffer's supply-side theory that tax cuts invariably
yield proportionately more tax income is no laughing matter for either
the White House or Congress.
Unfortunately, the "riverboat gamble" with tax reductions
did not work for President Reagan twenty years ago, even though he proposed
a decrease in discretionary nondefense spending. When the increased
tax income did not materialize, the Reagan administration had to borrow
billions, thus driving the national debt to unprecedented heights and
ballooning the interest payments on the national debt to the point where
they absorbed a fifth of the federal budget.
Why should the Laffer curve work now when the demands for military,
international, and homeland defense spending are far greater than in
1981? So far, the President has not even told Congress how much it will
have to appropriate for the homeland security agencies he created. If
deficit spending and a rising national debt again raise the cost of
borrowing, the younger Bush may well face the same taunt that brought
the elder Bush down in 1992: "It's the economy, stupid!"
The President's call for a $10 billion reduction in non-military appropriations
for 2003, as well as large spending cuts on the state and local level,
may tend to offset much of the tax relief provided by the federal government.
That this assessment is not idle speculation was just confirmed by the
Treasury Department when it asked Congress to raise the $6.4 trillion
ceiling of the national debt to avoid default by February. To call attention
to the nation's fiscal problems, Thomas Feeney, an employee of the Federal
Deposit Insurance Corporation, put into verse his new year's wishes
for the fulfillment of the President's supply-side dreams: