Presently more than 10.2 million Americans are unemployed. According
to The New York Times, the average length of unemployment has been nearly
20 weeks. Two million Americans have been without work for at least
27 weeks. 1.2 million gave up looking for employment and have dropped
out of the workforce. They are no longer counted as unemployed. The
number of Americans on part-time employment has risen to 4.8 million.
What is to be done? President Bush proposed another tax cut. $776 billion
over ten years, he asserted, would give 92 million Americans an average
tax reduction of $1,083 and create 1.4 million jobs by the end of 2004.
When he recognized that Congress was balking,
he lowered his request to $550 billion.
Whatever the size of the tax cut, it certainly will further increase
the national debt unless Congress achieved the nearly impossible feat
of enacting spending cuts as large as the tax cuts. On May 10, the National
Debt Clock (at www.brillig.com/debt_clock) stood at $6.5 trillion and
has been advancing an average of $1.13 billion per day since September
30, 2002. The nonpartisan Congressional Budget Office estimated that
a tax cut of $550 billion would raise the annual interest payments from
the present $333 billion to about $365 billion, provided that interest
rates stay as low as they are at present.
Proponents of large tax cuts argue that the problem of the rising national
debt is minor compared to the million jobs they will produce. That assumption,
however, is not a certainty at all. It is only a hope. Employers add
employees when they need them, not when the government wished they would
increase hiring. After previous tax cuts, many employers saved the funds
they gained, particularly if they could earn more in the securities
market. The people most likely to spend tax refunds immediately are
lower-income families with the most urgent needs, not the wealth-building
upper classes. Analyses of the $550 billion tax cut show, moreover,
that only 5 percent of this amount will go to the taxpayers in the first
year, mostly to households with annual incomes in excess of $100,000.
Today's tax cut proponents essentially repeat President Reagan's claim
that federal tax rates are too high. If they were lowered, they claim,
both corporate and individual income would rise and result in higher
tax revenues. That, however, did not happen during after the Reagan
tax cuts. When he became president in 1981, oil prices were very high
and short-term interest rates above 14 percent. When oil prices went
down and the Federal Reserve Board decreased interest rates to below
6 percent by 1986, it became substantially easier for Americans to borrow,
invest, and create jobs. Deregulations surged and new technologies,
such as the personal computer, raised productivity.
Reagan's tax cuts may have contributed to the economic recovery of the
mid-1980s, but it was the increase in the Social Security payroll tax,
not the cuts in federal income taxes, that largely raised revenues.
Historically, the controls that the President and Congress were able
to exert upon the nation's economy have always been more limited than
they were willing to admit. Actually, the Federal Reserve's interest
rate changes have had a much more immediate impact upon the economy
than changes in tax policy.
The budget deficits of the Reagan years doubled the federal debt and
the interest payments sapped much-needed funds from the private sector.
The more money government borrowed, the more interest rates rose and
made borrowing more expensive. Ironically, when Ronald Reagan ran for
the Republican nomination in 1980 and proposed the tax cuts that later
got the nation deep into debt, it was his opponent, George Herbert Walker
Bush, who called them "voodoo economics."