Federal Reserve Chairman Alan Greenspan left no doubt that he backs
the centerpiece of the Bush Administration's fiscal policy:
"I am in favor, as I have indicated in the past, for continuing
the tax cuts that are in dispute at this particular stage."
The Chairman failed to explain, however, how and when continuing tax
cuts would bring back the 2.6 million U.S. jobs lost since President
Bush took office in 2001. Like all tax cut advocates, Mr. Greenspan
seems to believe that lowering taxes will entice employers to increase
hiring. That, however, may or may not happen. It depends on the case-by-case
decisions of several million employers, large and small, that decide
if and when they want to hire more help.
The reasoning behind the President's gamble with a $3 trillion tax cut
over ten years is fairly clear. If tax cuts create jobs, they need to
go to wealthy businesses and individuals because they have the capital
to expand their spending and hiring. Lower income people are unlikely
to create more jobs because they lack the means to become risk-taking
entrepreneurs. People with modest means are likely to spend their small
windfalls from tax cuts to buy a few consumers goods and perhaps pay
off credit card debts.
Billionaire Warren Buffett noted that corporate taxes as a share of
federal tax receipts fell to 7.4 percent in 2003, down from a postwar
peak of 32 percent in 1952. "If class warfare is being waged,"
he observed, "my class is clearly winning."
Bush administration officials gave three main reasons for the job losses
under their watch: the terrorist attack on September 11, 2001, the corporate
frauds and bankruptcies, and the war on Iraq. Terrorism did set back
tourism, but only temporarily. The corporate scandals did not noticeably
impact upon the economy. And the prolonged American military involvement
in Iraq created more rather than less demand for goods and services.
What has suffered most is spending on welfare, education, and infrastructure.
Recognizing that the $275 billion cost of the tax cut in 2004 cuts a
deep hole into the federal budget, Mr. Greenspan reminded Congress:
"The budget deficit problem needs to be resolved primarily or fully
on the expenditure side." That, too, is wishful thinking at a time
when revenues, as a share of Gross National Product (GDP), are at their
lowest level since 1959 and America is embroiled in a war of unpredictable
length. In 2004 alone, the war is estimated to cost $120 billion.
When Mr. Bush moved into the White House, the fiscal surplus had reached
2.4 percent of GDP. At the end of his term, he will face a deficit of
4.3 percent, according to the Congressional Budget Office.
Yet, the Administration's spin masters ask us not to worry. Somehow
by 2012, they prophesy, the budget will be back in balance. That, however,
could happen only if discretionary spending does not continue to rise
at an average of 7.7 percent, as it has over the past five years. The
Economist estimates that if rate of spending were to continue, the deficit
would soar to $3.3 trillion.
Since September 30, the national debt has continued to increase an average
of $2.03 billion per day to a total of $7.1 trillion. To illustrate
the devastating impact of America's growing indebtedness, Robert McIntyre,
writing in The American Prospect, pointed out that "within eight
years, interest on the ballooning national debt would cost more than
all other federal outlays combined."
According to budget director Mitchell Daniels, "The president finds
the deficits acceptable." Daniels added: "They didn't produce
disaster before. They won't this time, either."
I remember when George Herbert Bush ridiculed the deficit and debt producing
tax cut proposals of Ronald Reagan, his opponent in the 1980 Republican
primary, as "voodoo economics." Ironically, today his son
George Walker Bush cheerfully pursues that same kind of voodoo again.