More creeping dishonesty from the Bush Administration:
The White House put government agencies on notice this month that if President Bush is reelected, his budget for 2006 may include spending cuts for virtually all agencies in charge of domestic programs, including education, homeland security and others that the president backed in this campaign year.
Administration officials had dismissed the significance of the proposed cuts when they surfaced in February as part of an internal White House budget office computer printout. At the time, officials said the cuts were based on a formula and did not accurately reflect administration policy. But a May 19 White House budget memorandum obtained by The Washington Post said that agencies should assume the spending levels in that printout when they prepare their fiscal 2006 budgets this summer.
“Assume accounts are funded at the 2006 level specified in the 2005 Budget database,” the memo informs federal program associate directors and their deputies. “If you propose to increase funding above that level for any account, it must be offset within your agency by proposing to decrease funding below that level in other accounts.” …
[T]he cuts are politically sensitive, targeting popular programs that Bush has been touting on the campaign trail. The Education Department; a nutrition program for women, infants and children; Head Start; and homeownership, job-training, medical research and science programs all face cuts in 2006.
“Despite [administration] denials, this memorandum confirms what we suspected all along,” said Thomas S. Kahn, Democratic staff director on the House Budget Committee. “Next February, the administration plans to propose spending cuts in key government services to pay for oversized tax cuts.”
Naturally, the administration denies that the memo means what it says. An OMB spokesman says the it is a “routine ‘process document’ … In no way should it be interpreted as a final policy decision, or even a planning document, he said.” Uh-huh. Riiiiight. (The Bush Administration’s stated intention to propose massive post-election spending cuts is neither a statement, nor an intention, nor a proposal. Discuss.)
Conservative think-tank budget analyst Brian M. Riedl says such cuts are “unavoidable”:
Federal agencies’ discretionary spending has risen 39 percent in the past three years. “I think the public is ready for spending cuts,” Riedl said. “Not only does the public understand there’s a lot of waste in the federal budget, but the public is ready to make sacrifices during the war on terror.”
Riedl may be right — although he fails to mention that another plausible “sacrifice during the war on terror” would be repealing at least some of Bush’s tax cuts for the wealthy — but that’s not the point. The point is, good policy or not, it is incredibly dishonest to specifically plan post-election actions that blatantly contradict the platform you’re campaigning on. At least when Bush’s father said “read my lips, no new taxes,” he probably meant it; he failed to follow through on it, but at least his intentions were good. Shrub, on the other hand, is just a bald-faced liar. This level of shamelessness would make Bill Clinton blush.
Bah. Vote Kerry for President. And let the comment-war begin.
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Categories: Election 2004
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May 27th, 2004 at 12:27:25 pm
lol
Brendan, you always make me laugh when you feign such innocence. Were you asleep during the Clinton Administration? Do you not know how politics works? Do you really think Kerry would be any different in using a shell game when making budget proposals, or making campaign promises he knows full well he most likely wouldn’t implement? Like the Pharisees dragging the harlot before Jesus, you’re all ready to throw that stone with the rest of your party with full hypocrisy on display. Either that, or you are really, really naive about politics. Which is it? Neither is very flattering, if you ask me.
“…although he fails to mention that another plausible ’sacrifice during the war on terror’ would be repealing at least some of Bush’s tax cuts for the wealthy….”
So what do you propose then? Raise taxes and put the breaks on the economic recovery? If you’re going to suggest policy, at least be honest about the full effects of its implementation. Not to mention, you seem to accept the logic of the progressive tax system by default without questioning the morality or the effectiveness of the thinking behind it. Why don’t we just raise the highest tax rate to 90%? That seems to be the sort of thinking you’re embracing here every time you attack these “tax cuts for the rich”. And why should “rish” be a slur anyway?
May 27th, 2004 at 12:46:19 pm
I am not naive, I know politics is an ugly and dishonest business, but there are lies and then there are lies. You Californians recalled your governor in part because he blatantly misled the public about the state of the budget prior to his re-election. And although we differed about our desired result of the recall election, I certainly don’t blame you for your anger at Davis. Now here we have Bush basically doing the same thing. He is pretending that he can continue the perpetual tax cuts and spending increases and still keep the budget afloat, which is obviously wrong. And you want me to not be angry about this?
Sure Kerry would fudge numbers, sure Clinton and Gore were known to practice “fuzzy math,” but this is on a different order of magnitude. And even if it’s not — even if you can prove to me that Clinton did stuff just as bad or worse — I will stand by my guns, and I will pledge to you now that, in the future, I will berate any Republican or Democratic president who uses these sorts of blatantly dishonest tactics to gain a cheap political advantage. If President Kerry plays these games to the same extent when he is running for re-election in 2008, and you can show me the evidence that he is doing so, I will condemn him for it, too.
Honesty and accountability are not partisan values, Andrew. We should demand them from our politicians, knowing full well that we will never achieve the Gnostic perfection of a perfectly transparent and honest government, but also knowing that if we stop being outraged by out-and-out deception — as your Machiavellian cynicism would suggest — we’ll be on a very fast slippery slope to Hell. It is our DUTY as citizens to hold our government officials to high standards of honesty, and I for one will not shirk that duty.
On a less up-on-my-high-horse note, consider my analogy to Bush the Elder. He didn’t even lie about the budget — he just went back on a campaign promise that he probably intended to keep when he made it — and his own party (your party!) was so outraged by his failure to keep his word that he ended up facing a spirited primary challenge from Pat Buchanan! Of course, that was largely because the promise he broke related to a treasured Republican ideal: low taxes. But the outrage would not have been there if the promise wasn’t broken. Fact is, the only reason you’re not outraged over Shrub’s deception is that you support his end goals, and because you’re a bloody Machiavellian, you don’t care about his means. If he was being deceptive in a way that offended your ideals, you’d be just as outraged as me, or moreso — and you wouldn’t be “naive,” you’d be right. So don’t feed me this line of bull about how I’m naive. Just because you’re blinded by the stark contrast between my mild idealism and your unrelenting cynicism doesn’t mean my points are invalid.
May 27th, 2004 at 12:49:34 pm
That assumes that the Bush tax cuts are responsible for some so called “recovery.” It also assumes that tax policy is an effective tool for controlling the economy–which it is not.
Shall we get real for just a moment here. Although the President takes a lot of blame for bad a bad economy, and is often times lauded for a good one the economy is the one thing that the President probably has the least control over. Trying to effect the economy with budget policy is like trying to steer the Queen Marry II with a kayak paddle. Eventually it will do something, but pretty far down the road. Monetary policy, on the other hand, is like trying to steer the Queen Marry II with motor boat; it will have a little bit of an impact, but can’t keep it up for very long.
So, what is good for the economy? Well, really, people have to “feel” good. So, in a sense the president can provide a feeling of security and stability or not. But that has nothing whatsoever to do with the tax code. So what is the best thing to do with the tax code in regard to the economy? Set it at something and leave well enough alone. The long term stability of such a move would do far more to help the economy than the constant changes and modifications. However, there are those that have a vested interest in the tax code being complicated and hard to figure out. We call these people accountants, and we pay them lots of money.
May 27th, 2004 at 1:04:42 pm
I am neither a tax expert nor an economics guru, but I think the truth probably lies somewhere between Andrew’s version and Dane’s version. Which is probably a pretty good description of where the truth lies on most things, actually. :)
My suspicion is that at least some of the Bush tax cuts could be rolled back without a devastating impact on the economy. And if there is a slight impact, so be it. If you have a problem with that, look up the word “sacrifice” and get back to me.
But Andrew, if you and Bush and the rest of your ideological comrades really think that maintaining, and permanentizing, those tax cuts is essential to the well-being of the economy, fine. But if you’re going to suggest policy, at least be honest about the full effects of its implementation. Tell us exactly how you plan to keep the federal budget afloat after 2010, when the tax cuts have become permanent, the Baby Boomers have stretched federal entitlement programs well beyond their limits, and the federal deficit has exploded to unprecedented levels. Do you intend to raise the retirement age to 75? Will you simply cancel Medicare and Medicaid? Are you going to eliminate the Great Society and the New Deal in one fell swoop? Inquiring minds want to know! (Note: “Who cares, that will be Hillary’s administration’s problem” is not a sufficient answer. Even though I suspect, in his heart of hearts, this would be Karl Rove’s answer.)
May 27th, 2004 at 1:13:54 pm
Andrew, you’re being a bit over-dramatic here. No one is proposing raising taxes on the wealthy to 90%. Personally, it seems to me that you’re arguing for a nouveau trickle-down-economics theory wherein giving money to the rich–not to corporations or businesses–will de facto put more money into the pockets of the middle and lower class.
I’m confused as to how lower taxes on the wealthy is supposed to spur economic recovery. First and foremost, we live in a time when CEOs and upper level executives have obscene salaries while their employees struggle to make ends meet. We watch Walmart refuse to pay its employees a living wage or offer health care while they simultaneously undercut all surrounding smaller businesses until they declare bankruptcy. As the executives of Wally-world can afford their third Bentley, their cashiers go into debt to pay for their children’s glasses.
As shocked as I am to say it, I think Dane might be right. It’s difficult to attribute economic recovery to the tax cuts. One alternative theory may be that the brilliant financial minds lost on Sept 11th could not replaced immediately and the result was an economic hiccup. Financial corruption unseen since the days of the Depression prolonged this hiccup and viola, as those crises resolved themselves, the economy improved. I’m not saying that these are the definitive reasons for economic recovery, I’m just proposing alternatives to your tax cuts equal a great economy logic.
Fact is, Bush’s financial policy is a disaster. If you think otherwise, YOU are the naive one blinded by partisanship.
May 27th, 2004 at 1:44:31 pm
Another point worth considering: the 1990s were a rather prosperous time, even though the tax rates were at pre-Dubya levels. To cite just one example, quite a few people were investing in the stock market during that decade, as I recall, in spite of the “double-taxation” of dividends. Of course, the stock market crashed in 2000 and 2001, but that was because the tech bubble burst, not because people suddenly realized their dividends were being overly taxed and decided to pull their money out of stocks. So let’s get real here. The American economy is quite capable of being enormously prosperous, even under Clinton-era tax rates. It isn’t Bush’s tax cuts that keep the economy humming — it’s the genius of the capitalism system, the entrepreneurial spirit of American businessmen and women, and the good ol’ Protestant work ethic. (How’s that for co-opting Republican themes?) So this idea that our economy will be inevitably devastated by moving back toward the status quo that existed before Bush radically altered the tax code in favor of the rich strikes me as somewhat ridiculous.
And by the way, “rich” is not a slur. (Neither are “labor union” or “trial lawyer” or “government employee” slurs, though that never stopped Republicans from using them as such. We all have our favorite scapegoats. But I digress.) There are plenty of hard-working people in this country who have earned every penny they own, and deserve to live comfortably off the fruits of their labor. Becky’s dad is a fine example of this. There are also many other people who have been lucky enough to inherit wealth (I’ll let you draw your own conclusions about who might be a fine example of that), and we certainly shouldn’t reflexively resent them either; jealousy is a sin. But I never said that rich people are evil, so this is an irrelevant diversion that you have introduced into our argument. All I said was that repealing Bush’s tax cuts for the rich — which is a factually accurate description of the bulk of said cuts — would be a viable alternative form of “sacrifice” in light of the war on terror. As for the morality of the progressive tax system, I do not believe it is necessarily a “slur” against wealthier citizens to suggest that those who can afford to pay more, do pay somewhat more. But I am not unwilling to consider alternative options, such as a flat tax. I am unwilling, however, to quietly acquiesce to radical tax reform dressed up in the guise of an “economic recovery package.” If Bush wants to eliminate the progressive tax system, he must make his case to the people and let us decide whether that’s something we want. That’s what democracy is all about.
May 27th, 2004 at 2:15:45 pm
Please see a previous comment of mine in regard to what should be done with the tax code. Thank you, that is all.
May 27th, 2004 at 2:16:42 pm
So, where did this entitlement to retirement at 65 originate? Prussia. Under Bismark. It’s not like Moses got it from the burning bush. Now, the Boomers see it as a God Given Right (or would, if they were into ceremonial Deism). As Boomerspawn, we need to adjust to some unpleasant facts - odds are, we’re not going to get the same sweet Social Security deal that they’re getting. Somebody’s going to have to deal with it, and it’s not going to be pretty. (OTOH, there’s a good chance that technology will pull our chestnuts out of the fire again).
It all depends on how you define ‘rich’. My taxes are lower. Does that mean I’m rich?
May 27th, 2004 at 3:08:38 pm
“Now here we have Bush basically doing the same thing.”
No, they’re two different scenarios. In California’s case, we’re not allowed to run deficits, spending continued to increase disproportionate to gains in revenues, gaps were covered by borrowing and ploys that merely exacerbated the problem and pushed it into the future, and our credit was about to bottom out. Plus, they were proposing a flotilla of tax increases (which would have narrowed the unnecessary gap created by lavish spending increases but not totally). Essentially, budget growth projections were seemingly based on the presupposition that tax revenues from capital gains would increase indefinitely. This assumption proved totally false when the internet/stock bubble collapsed.
Bush, on the other hand, is hiding his cards for now for a couple reasons.
One, nobody got elected by promising the voters less; this is obviously a serious problem if you’re a small-government conservative (or libertarian). But this axiom even affects pro-spending Democrats from time to time, as they tend to promise much bigger programs when they know they won’t be able to draw enough revenues to fund them completely.
Two, the American people are either stupid, or know they’re being lied to and don’t care. I lean towards the latter explanation, although the former sometimes seems very plausible. What voters will not tolerate is being lied to about national security–telling us your plan is safer when most rational people see no difference or see your plan is actually worse–and being lied to about past history–telling us you’re against the Patriot Act or against the Iraq War when the votes show you voted for them does not endear you to many people, which is why senators as a general rule do not get elected president.
Three, Bush has a good reason to plan for the worst (serious budget cuts) until we have a clearer view of how much the Federal Reserve will change interest rates and what that does to the economy, job growth, the stock market, and tax revenue. He got lucky in having over $100 billion shaved off the current deficit by better-than-projected economic growth, but it’s too early to rely on those gains next year as well.
Four, budget projections are a very fluid thing. Quite often there is a lot of horse-trading that goes on as it moves through the Senate. In addition, the final numbers always come back higher than when you sent the proposal to Congress, so this is just one more way to help keep that end result more reasonable.
Overall, the president’s moves here appear very prudent.
“He is pretending that he can continue the perpetual tax cuts and spending increases and still keep the budget afloat, which is obviously wrong.”No he is not; you’re contradicting yourself–your post itself is an expressment of anger that he intends to cut spending/spending increases. He is planning for possible budget cuts–reining in spending to be more in line with revenues. That is prudent, you just don’t happen to agree with that strategy; you want taxes raised instead, apparently, or for Bush to tell the world he is slashing the budget to better ensure he gets defeated and your man reaps the undeserved rewards of an easy victory and low expectations and more leeway to increase spending and taxes. I am sure Bush would prefer higher tax revenues from economic and job growth over cutting spending, or maybe he’ll have both, but in no way is that dodging the budget reality.
“…but this is on a different order of magnitude. And even if it’s not — even if you can prove to me that Clinton did stuff just as bad or worse….”
Sorry Brendan, I’m not doing your homework for you. This is a very minor “lie” in the grand scheme of things and you know it. You can lambast every politician and candidate who does this–and they nearly all do, because the facts on the ground change so quickly, you know when you put your numbers out that they are likely to be overruled by reality in due time anyway–but to make election decisions on this is rather convenient. It’s like raining down criticism on Kobe Bryant for being unfaithful to his wife and not having a peep of criticism when Kareem Abdul Jabbar says he slept with 25,000 women. I didn’t have a problem with you criticizing Bush, I had a problem with you making the incredible claim that it is worse than anything Clinton ever did and is reason to vote for Kerry. Standing up for honesty by slamming Bush here and supporting Kerry instead is cutting off your nose to spite your face-type thinking. By that logic, you would pretty much be forever unable to vote for an incumbent of either party, because they all pull the same crap. Go ahead and trumpet your anger to the world, but if the voters don’t respond to your umbrage (they haven’t in the past, and they won’t now when the stakes are much higher–Iraq, the war on terror, and all), you’re just going to have to learn to live with things never changing.
Re: your last paragraph, again, I’m not saying so much that your points are invalid, merely that you’re unrealistic and naive to point to Kerry as a solution here. Re: Bush the Elder, he violated a very clear political rule defined by Chris Matthews thusly: Dance with the one who brung ya. When you alienate your base, politically, you’re screwed. Playing shell games with budget numbers doesn’t incense the average voter, who cares more about the end result than the cleanness of the process. It just pisses off “mild idealists” like you. If I’m Bush, you’re damn right I take that risk and instead focus on getting elected and then getting things done after that.
Dane, you seem to have a rather airy, esoteric view of the economy. That’s fine to a certain extent–economics is still a very imprecise area of study–but it flies in the face of both common sense and historical observation. Tax cuts and interest rate cuts do not cause recessions or expansions, but they certainly change the timelines and the steepness of the growth or recession.
Even to use your Queen Mary II analogy, the rudder only has to be moved very slightly to effect a very real turn. Taxes and interest rates have very real effects on the economy. Tax cuts in the early ’60s, in ‘81, and in ‘01 all had stimulating effects which accelerated economic growth in the years that followed. In contrast, tax increases in ‘93 followed by quick raising of interest rates in ‘94 stalled the economy for a couple years. Tax rates and interest rates affect where millions of people put their money, and the cummulative effect of that has a serious impact on economic growth. Consumer and investor confidence can certainly affect things, but concrete events affect things more. Leaving well enough alone is definitely a good thing, because it provides stability. But injecting more capital into the market by way of tax cuts is something no economist would deny as economically beneficial.
Tax increases would not be devastating. per se, but they would significantly slow down job growth and the economic expansion rate. It’s like investing in stocks versus bonds long term; in the short term, one or the other may be the smarter pick, but in the long run, stocks have proven to give you a better rate of return–sometimes double bonds. The thinking behind lower taxes is the same as the thinking behind investing in stocks long term: with stocks, you suffer the chance of short term loss in principal, while in tax cuts, you suffer short term stunted revenue income; but because the rate of growth is higher for stocks, twenty years down the road the same amount of principal gains you more money, while with tax cuts, the increased speed of economic expansion means the economy restores that revenue down the road and causes that revenue to increase faster after that than if taxes had been left unchanged. This is not a fixed rule; it depends on where we are on the (ironically named) Laffer Curve. But the effects are provable, and your best argument is to show that where we are on the Laffer Curve means we’re getting too little bang for the buck to make the tax cuts worth it. Very few economists would agree with that, however (Paul Krugman excepted, of course).
“Tell us exactly how you plan to keep the federal budget afloat after 2010, when the tax cuts have become permanent, the Baby Boomers have stretched federal entitlement programs well beyond their limits, and the federal deficit has exploded to unprecedented levels.”It’s a matter of the Laffer Curve principles coming into effect, for the most part. Over time, the deficits will shrink, assuming we hold spending to close the rate of inflation. Furthermore, the entitlement program problems we face with Medicare and Social Security would not be solved by a change in income taxes because those programs are paid for by FICA taxes! Those programs, to remain solvent, will have to be restructured or privatized, and Bush has not shied away from proposing that; he ran on Social Security and Medicare reform in 2000, and he’ll run on it again this fall. What you are suggesting is to raise general revenue by increasing taxes to pay for entitlement programs, a position that even the Democrats pretend to reject at this point. Eliminating the Great Society and New Deal programs “in one fell swoop”, as you put it, would actually worsen the deficits at this time because the resultant loss of income from FICA taxes would balloon the deficits, as Social Security is still running major surpluses right now. You need to get your taxes straight.
“Andrew, you’re being a bit over-dramatic here. No one is proposing raising taxes on the wealthy to 90%. Personally, it seems to me that you’re arguing for a nouveau trickle-down-economics theory wherein giving money to the rich–not to corporations or businesses–will de facto put more money into the pockets of the middle and lower class.”
Au contraire. I did not suggest anybody was saying we should raise the rate to 90%, I was using that as an extreme example to illustrate a principle. What would happen if the top rate was raised to 90% How much would those negative effects impact the economy if it was 80%? 70%? 60%, 50%, 40%?
Trickle-down theory is the snarky name given to supply-side economics by its ’80s opponents. The only problem with the opponents’ arguments is that hindsight proved them wrong; in the ’80s, real wealth did “trickle” down, and even more so in the 90s, where the same principle was in effect. This occurs because rich people, in general, tend to be the employers of society, and as they have more disposable income, they can afford to buy more products and invest more capital, causing businesses and employment to grow. It’s rather logical. The more you tax upper income people, the less money they have to spend and create jobs through investment, spending, and business expansion. This causes a general economic malaise, which was well-exhibited by Great Britain, the “sick man of Europe” until Thatcher came a long and slashed tax rates, including said 90% top tax bracket. Since then they’ve averaged economic and job growth at rates nearly equal to America and far better than anyone else in Europe, where Germany and France barely achieve 1-2% economic growth rates and 10-15% unemployment rates, due mostly to their bloated welfare state policies, inflexible labor markets, and high tax brackets.
“…we live in a time when CEOs and upper level executives have obscene salaries while their employees struggle to make ends meet.”The first part of that statement is correct; nobody doubts that executive compensation standards are due for some serious reform. However, the second part of your statement is just plain empirically incorrect. We have had, during the past twenty years, lower unemployment rates than just about anywhere in the world, and average income for the bottom 20% has risen far faster than inflation in that time period (this is actually mostly due to welfare reform and not tax policy).
“We watch Walmart refuse to pay its employees a living wage or offer health care while they simultaneously undercut all surrounding smaller businesses until they declare bankruptcy. As the executives of Wally-world can afford their third Bentley, their cashiers go into debt to pay for their children’s glasses.”
Who are you, Barbara Ehrlich (whoever that Nickeled and Dimed author was)? There’s a simple solution to the Wal-Mart problem: Stop shopping at Wal-Mart! My grandma lives out in the high desert, and fixed-income people like her as well as other poor people out there flock to Wal-Mart because of the cheap prices. If Wal-Mart gave better benefits to its employees, less people would shop there because wal-Mart’s costs and therefore its prices would go up. In turn, that saved money in the consumer’s pocket can now be spent elsewhere on other things, driving economic growth in other areas. If you believe so strongly in “the living wage”, tell your daddy to invest your trust fund in only those businesses that pay it, and watch your stock worth drop like an anchor in the deep ocean. I do indeed find it kind of ironic to hear a trust-fund baby complain about the same corporate strategies that made her life so cushy.
The economy did indeed recover from 9/11 and the stock market bubble popping mostly on its own. What the tax cuts did was limit the number of quarters of recession to only 3, instead of 4, 5, 6, or more, and sped up the recovery by lessening the rate of recession and increasing the rate of growth. In fact, this is standard Keynesian economic practice: cut taxes and increase spending during recessions, and increase taxes and decrease spending during expansions. This has been standard, bipartisan economic thinking for eighty years. Where the supply-siders get off the track is they say to keep the taxes low and cut the size of government even more during expansion to lessen the overall burden of government on the economy and allow for greater rates of growth.
May 27th, 2004 at 3:37:47 pm
Meanwhile in a closely-related development, an astonishingly perceptive Commentator has posted brilliant Commentary regarding John Kerry’s decisive Decision to permit his party’s convention to Nominate him after all. :)
(cc: Section on Humility :)
May 27th, 2004 at 4:31:10 pm
“To cite just one example, quite a few people were investing in the stock market during that decade, as I recall, in spite of the “double-taxation” of dividends. Of course, the stock market crashed in 2000 and 2001, but that was because the tech bubble burst, not because people suddenly realized their dividends were being overly taxed and decided to pull their money out of stocks.”
No, that is not an accurate assessment of what happened. First, technology advances with things such as computer networks, the internet, etc. did indeed have a huge impact on business productivity and revenue growth. However, what happened was an irrational mindset set in: With the advent of the internet start-up, the preposterous idea that tech businesses could go long periods before turning a profit became accepted by many investors. Internet start-ups then got the idea that they could go years without profit and still retain shareholder confidence and high cash flow due to capital influx. What happened as a result was stock price-to-earnings ratios went from a historical average of something like 15-1 to 30-1 and tech workers got used to easy money. In other words, stock prices became overinflated and overvalued, and a few people got temporarily lucky and rich. I’m not quite sure how investors justified this back then, and I’m still not quite sure how they justify the ratio being ~22-1 right now. It still seems a little high to me, which is why I am a bit more timid with stocks at the moment, preferring to invest solely in my 401(k) which includes some stocks but is also a long-term investment. But back to my point. Investors had accepted this higher rate of return. Where the bubble popped was when a lot of big investors finally decided this was nonsense and started expecting to see profits. When profits didn’t come, they dumped their stocks, prices plummeted, and suddenly smaller investors who were riding along making easy money got burned, and tech workers lost their cash flow. Forced to cut costs and turn profits quickly, most of them went out of business. The end result? Bad investment=lost money and lost opportunity, and a stunted economy.
Now, the stock market is continuing its rationalization, trying to figure out what the new equilibriums should be. Some still believe techs warrant a higher P-to-E ratio, but many more are skeptical and we’re back to more basic interpretations of capital markets that held sway in the ’80s and before.
The tech boom and bust is ultimately irrelevant to tax policy, except to say that if capital gains rates were lower, the bubble would have grown bigger due to more capital chasing the same amount of stocks, short-term gainers who got out in time would have made more money, and long-term investors would suffer the losses the same either way. On the clearly positive side, the government would have been less vulnerable to the bubble popping and government outlays would have been less drastically impacted overall.
“The American economy is quite capable of being enormously prosperous, even under Clinton-era tax rates. It isn’t Bush’s tax cuts that keep the economy humming…. So this idea that our economy will be inevitably devastated by moving back toward the status quo that existed before Bush radically altered the tax code in favor of the rich strikes me as somewhat ridiculous.”
You’re right, the economy will function normally under Clintonian tax rates, and Bush tax cuts are not [totally] responsible for economic performance. But first of all, the tax cuts were not “radical”–38% to 35% is not radical. And raising taxes back to Clintonian levels will not “devastate” the economy. What will happen is the economy will grow at a slower rate and/or stall while the markets adjust, and while immediate tax returns will jump significantly, long term the revenues will increase at a slower pace compared to inflation. This is not “devastating”, but it certainly isn’t in improvement, in my opinion. I’d rather suffer a few years of deficits and spending cuts and keep the higher economic and job growth rates. Not to mention, while the deficit and debt numbers are large in pure dollars, as a percentage of GDP they are much more manageable than where we were ten or fifteen years ago. The other fear is that consistent deficits will spur extreme interest rate increases a la the 1970s. However, with interest rates now at the lowest they’ve ever been pretty much and inflation also very low, we have a window of about a decade probably to close the gap, which is totally reasonable if we hold the line of spending increases.
“I said was that repealing Bush’s tax cuts for the rich — which is a factually accurate description of the bulk of said cuts — would be a viable alternative form of ’sacrifice’ in light of the war on terror.”
If you argue that the rich’s taxes should go up to satisfy a moral principle that we need to “sacrifice” for the war on terrorism, then as a principle, everyone’s taxes should go up, not just the rich. But that wasn’t the argument I saw you make, unless I read it wrong somewhere.
“But I am not unwilling to consider alternative options, such as a flat tax.”
Don’t you realize that the Bush tax cuts are essentially a “flattening” of the current progressive system? The end result is still not flat, but it is more flat than it was before. Any flattening movement as applied to our progressive tax system is de facto going to be a “tax cut for the rich”, so it seems kind of silly to be for a flat tax but against “tax cuts for the rich”!
“I am unwilling, however, to quietly acquiesce to radical tax reform dressed up in the guise of an ‘economic recovery package.’”
Well finally you have a fair criticism. Unfortunately, it’s again not very realistic. You took political science classes, so I am sure you are quite acquainted with the term “incrementalism”. Major overhauls like the 1986 tax reform are very rare; normally tax policy changes over time in slow, incremented periods like that in the Bush tax cuts, which are spaced out over a decade. This is not only easier to swallow politically, it is less dramatic economically and gives the economy time to adjust. In an ideal world, it would be nice to have a referendum-type procedure or election wherein “[Bush] must make his case to the people and let us decide whether that’s something we want” since “[t]hat’s what democracy is all about.” Except that’s edging closer to direct democracy California-style, and is that really what we want? And if every major shift like that had to be done all at once, all-or-nothing, take-it-or-leave-it, even less would ever get fixed because the political risk would be too high for anybody to willingly take it on, until things get so bad that we’re at the point of disaster and both parties get behind a “consensus” reform. That’s what has happened a lot in Europe anyway, and it’s led to bloated welfare states and economic stagnation.
May 27th, 2004 at 6:42:34 pm
The right honorable Mr. Long has well explained why, if you cut taxes under a graduated income tax, the rich must inevitably keep - not get, keep - the greater share. However, he has not explained why it is a good idea to both cut taxes and increase spending such that the government runs on a deficit while already carrying a tremendous debt, such that higher taxes are inevitable in the long run. If you cut taxes, you must cut spending. That means no authoritarian dictates to the schools that must be funded, no further funds for the National Endowment for the Arts, no money for marriage counseling, no trips to two lifeless rocks in space, and no billions of dollars in an occupation that has nothing whatsoever to do with our national defense. THAT, not the tax cuts alone, is the problem.
Furthermore, the unemployment rate has grown in recent months, as well as en toto over Bush’s entire reign. Not in one month have Bush’s new job growth projections come true. One month it ALMOST reached the promised average, and conservatives cheered Bush’s genius. Keep in mind, the economic growth figures that our right honorable friend shall no doubt quote have only to do with money in circulation and stock prices, nothing at all to do with whether anyone has a job or everyone has enough to meet their needs. Rich people, in general, prefer to end jobs, not create them. It’s better for their stock prices. I’ll buy the property rights argument to reduce taxes, so long as reduced spending comes first, but let’s not pretend that it would create jobs. Reagonomics didn’t do it, airline bailouts didn’t do it, why should this be any different?
May 27th, 2004 at 7:24:02 pm
Yes, Sean, the rich like to bury all of their money in tin cans, rather than spending it. That’s how they get rich, right?
As for “If you cut taxes, you must cut spending”, that’s clearly not the case. Spending has increased, and taxes have been cut.
Deficit spending is like credit card debt. Not the best idea, but in the absence of positive cashflow, it’s a solution. The important thing is that once you’re operating in the black, you don’t start spending money like a sailor on shore leave, at least until the accrued debt is taken care of.
May 28th, 2004 at 5:06:37 am
I don’t own a credit card, Doc. It’s a simple idea. If I don’t have the money on hand, I don’t want to spend it. Why? Because otherwise I have to spend MORE. And on a first-year teacher’s salary, no less, I have to concentrate on the essentials. Sure, a scanner or a digital camera or cable for that matter would be nice. But first I need to worry about food and rent and car payments on a hybrid.
In many cases, that is how you get rich, by having stocks (money in a tin can, if you will) in their companies. Those stocks go up when less money is spent on the operation. When you lay people off and close plants, you spend less money, your stocks are worth more. Pay very little to a bunch of foreign kids cramped in a tight space with poor light and poor ventilation, you save even more money. If they spent all their money, they wouldn’t be rich.
Rich people often get rich because money is their highest value. When you care about money enough to make some, but have other priorities, like love of the job you do or the people in your life, you probably won’t get rich.
Then there’s the rich folk that don’t make jobs for anybody. How many people do Michael Jordan and Stephen King have on their payrolls, do you suppose?
May 28th, 2004 at 7:27:37 am
I did not say that fiscal and monetary policy have no effect on the economy. They do and it would be damn foolish to say something involving money does not have an effect on the economy. What I was trying to get at is basically two things. That there is a lot of inertia pushing the economy in one direction or another and there are a huge number of forces at work on it at any given time making it very difficult to steer the economy with any sort of reliability. And further, that fiscal and monetary policy are fairly poor tools to use because their effects are usually minor, and can only be seen in the very distant future; where there are so many other things that can throw you off course that they become almost irrelevant. That is why I think the boat analogy is a fairly good one. If you are off by one degree leaving England it makes a difference between landing in Massachusetts and landing in Virginia. Now that is a big difference but it only manifests it self after over 3000 miles of sailing and the opportunity for a lot of storms to have stirred things up in the mean time. But it is not like the resistance from a paddle or pull of a small boat can’t do anything, they can if nothing else acts on the boat, they will–but you can still steer the boat to compensate. Trouble is, there is no one “at the helm” of the economy–but perhaps I should have said “it is like trying to steer the QE2 with a screwdriver.” (Historical side note, the QE2 was in fact steered with a screw driver for several years after the original steering wheel was stolen and before they got around to replacing it.To all accounts it worked fairly well, but was not terribly impressive to passengers taking the bridge tour.)
May 28th, 2004 at 10:19:57 am
“However, he has not explained why it is a good idea to both cut taxes and increase spending such that the government runs on a deficit while already carrying a tremendous debt, such that higher taxes are inevitable in the long run.”
You misunderstand, Sean. The Keynesian model calls for cutting taxes and raising spending during a recession in order to pump more money into the economy and jumpstart it. Then, in an expansion, the Keynesian model calls for raising taxes and cutting spending to create a budget surplus, tame economic growth (in hopes of stalling inflation), and eliminate national debt. Supply-siders rely on monetary policy to curb inflationary pressures, and say that while it’s okay to cut taxes and increase spending in recessionary times, during expansion, taxes should remain level and spending should be cut until surpluses return. No school of economics advocates increasing spending and cutting taxes repititiously across all parts of the business cycle.
“Furthermore, the unemployment rate has grown in recent months, as well as en toto over Bush’s entire reign. Not in one month have Bush’s new job growth projections come true.”
Easily disprovable. The economy has generated 1.1 million new jobs from August 2003 to April 2004, including 288,000 net new jobs in April and over 325,000 in March. The unemployment rate has dipped from a peak of 6.3% in June 2003 to 5.6% in April. Analysts expect those monthly job creation numbers to continue through the end of the year, which would easily fulfill Bush’s forecast of 2.8 million new jobs or whatever and lower the unemployment rate to below 5% and possibly even close to 4%. Incidentally, that 5.6% rate is below the decade average for the ’70s, ’80s, and ’90s. Furthermore, Gross Domestic Product grew at a 4.4% rate this past quarter, well on pace to fulfill analysts’ predictions for a 4.5% gain this year, which would be the strongest expansion in over twenty years. (In the past four quarters, GDP has expanded at a 5% rate, also the strongest four-quarter surge in two decades.)
Suffice it to say, you’re way off the mark in your criticism there. If gas prices weren’t so high and Iraq wasn’t dominating the news, Bush would be surging on this news. The major threats to Bush’s forecast are inflation (so far the Consumer Price Index has shown an increase there, enough to worry some Fed-watching investors, but nothing dramatic–about 3% annualized rate of inflation), and how quickly the Fed raises interest rates (if they raise them too quickly, that could slow down the economy and job growth). Assuming oil prices level off and even decline, and assuming interest rates don’t climb more than 1.5 points between now and December, the economy around election time is likely to remain steaming hot.
“Rich people, in general, prefer to end jobs, not create them. It’s better for their stock prices. I’ll buy the property rights argument to reduce taxes, so long as reduced spending comes first, but let’s not pretend that it would create jobs. Reagonomics didn’t do it, airline bailouts didn’t do it, why should this be any different?”
Wow, I am shocked a libertarian could be so ignorant of economics!
Rich people do not prefer to end or create jobs, they prefer to get richer. Investing in a business or industry that is expanding and becoming more productive, efficient and profitable, and therefore is hiring more workers to keep pace is exactly what investors aim for. The point of layoffs is to reel in labor costs to within profit margins, and as profits grow and the businesses grow, business owners need more people to handle the increased amounts of work necessary to keep business strong. Very rare is the case where a business can grow profits/sales and cut labor costs at the same time.
“Reaganomics” did indeed “do it”. Remember how I said GDP growth was the strongest in twenty years? Twenty years ago was 1984, right after Reagan jumpstarted the economy with a massive tax cut in ‘81. Bush tax cuts were enacted in 2001; 2004 is showing major economic gains. Coincidence? There are plenty of economists who argue that “Reaganomics”, “voodoo economics”, “trickle-down economics” or supply-side economics (whatever your preferred term is) doesn’t work, but they argue their case in spite of the obvious numbers, not because of them. What they do is find other, more hidden measures of economic performance and argue that something else was responsible for the economic boom and not the tax cuts.
“Those stocks go up when less money is spent on the operation. When you lay people off and close plants, you spend less money, your stocks are worth more. Pay very little to a bunch of foreign kids cramped in a tight space with poor light and poor ventilation, you save even more money. If they spent all their money, they wouldn’t be rich.”
More nonsense. Stock price is based on earnings, or profit margins. When profit margins decrease, stock price decreases correspondingly. This is why corporate quarterly reports are such a big deal, because investors comb through them for clues into whether or not they think profits will increase or decrease over time, and therefore whether the current price of the stock is over- or undervalued. If it looks like a good deal, they buy the stock and expect the price to go up, and make money on the capital gains. Or, they’re looking for increased dividends (the percentage of the company’s profit that gets paid out to shareholders–usually 2-3% of the stock price). If a certain industry has stagnant sales or profits, then yes, the only way to grow profit margins is to become more efficient: by investing in more efficient production techniques, equipment, or cutting labor costs. However, most of the time (and especially in an economic expansion), profit growth is attained in large part by gaining market share or selling to a growing market. Typically, as you expand market share or sell to more consumers, you need to hire more people, which is why unemployment drops during expansions and rises during recessions.
In addition, the whole point of lowering your costs, including labor costs, is to be able to sell your product at a cheaper price to gain a competitive advantage over the opponent. As the consumers spend less money for something that used to cost more, they have more money to spend on other things, providing job growth elsewhere. For instance, if my accountant offshores his paperwork to India and that saves me $200 during tax preparation, I now have an extra $200 to go buy a digital camera that I couldn’t have afforded otherwise. Because of increased camera sales, camera-producing companies grow and hire more people (not to mention invest more money in developing newer, cheaper, better quality cameras!). Same with Wal-Mart: the less money I spend on food and groceries, the more I can use to spend at Home Depot refurbishing my house, creating more jobs in construction, carpentry, flooring, plumbing, roofing, etc. These are everyday, real-world examples that take place in the average person’s life. For a richer person, he or she might buy a luxury item, creating jobs in luxury-oriented businesses, or they might invest that extra money in the market, money that a business is then using as capital to buy new equipment to make a better, cheaper product and grow their business, and earn the rich investor more money on his initial investment.
“Then there’s the rich folk that don’t make jobs for anybody. How many people do Michael Jordan and Stephen King have on their payrolls, do you suppose?”
It doesn’t work like that. Michael Jordan helped sell Nike shoes, Chicago Bulls jerseys, and tickets to NBA games. Increased interest in the NBA led to higher TV ratings, meaning more advertising and more consumer purchasing. The impact of Jordan on the economy is very indirect, but nonetheless powerful. Now that he’s made his money, most of it is probably invested in businesses and markets. Look at Magic Johnson or Keyshawn Johnson: Both have made a ton of money in sports. They have turned around and used that money to buy up land in places like South Central L.A., develop malls and theatres, and revitalize the local economy in black neighborhoods. As a result, crime has dropped, jobs have become more available, and black family income in L.A. has risen noticeably. And in return, Magic and “Me-shawn” have got even more rich, because a wise application of their wealth created even more wealth–for them and everyone else. That is the magic of capitalism, and I am astonished at your ignorance of how it works. Honestly, you sound like a mercantilist, and you’d have to be the first libertarian mercantilist I’ve ever heard of! Either that or you are speaking out of so much ignorance, you probably ought to consider keeping quiet until you know what you’re talking about. Better to be thought a fool than open your mouth and remove all doubt.
Dane, your boat analogy is yet another example of your resort to esoteric imagery and analogy in lieu of factual counterargument. Please, if you’re going to talk economics, prove your point with real-world data, known economic concepts or theories, or cite some economists, and quit relying on megaships and screwdrivers to get your point across.
May 28th, 2004 at 12:28:35 pm
I guess Brendan didn’t tell you about my Nobel Prize in Economics :)
May 28th, 2004 at 12:39:07 pm
heh. Indeed.
June 2nd, 2004 at 10:21:33 am
A column by David Brooks in yesterday’s NYT says that National Journal was right in assigning Bush’s economic performance a B/B+ grade. The arguments don’t appear too different from what I’ve been saying:
“There are four big objections to the tax cuts. The first is that you don’t cut taxes in a time of war. This is the least persuasive. Some outside economists say the cuts created or preserved 1.5 million jobs. It’s hard to see how the war effort would have been enhanced with those people out of work. If we had wanted to create a sense of shared sacrifice, which we should have, it would have been far better to institute an ambitious national service program.
“The second objection is that the cuts were poorly designed. They were drawn up in the midst of prosperity and then wheeled out in response to recession. Even Decision Economics’ Allen Sinai, a big supporter of the cuts, says the stimulus could have been stronger if more of the cuts had been distributed down the income scale. The White House lacks a compelling response to this.
[Editor’s note: The WH response to this is supply-side theory; the extent to which you find supply-side economics “compelling” will determine the extent to which you think the WH’s response to this second argument is “compelling”. David Brooks is a solid conservative, but he’s not much of an economist–more of a social/cultural conservative. To my knowledge he does not have strong views for or against supply-side theory, which explains why he gives more deference to those making this argument against the Bush tax cuts.]
“The third argument is that the cuts should have been temporary. White House folks argue persuasively that given the rolling series of blows — the bubble, the corporate scandals, the war jitters — a short-term stimulus would not have worked. ‘You were not going to get a sustained recovery from something temporary, Friedman says. [Editor’s note: I didn’t touch on this point earlier, but it’s largely true. The problem is, if people know the cut is temporary, those recipients in a more dire financial situation may still spend the money or use it to pay off bills, but the big-bucks investors will not speed up or otherwise alter their investment plans. Thus, if you are trying to jumpstart a recovery by convincing businesses and rich investors to put their money down when the market clearly warns against it, promising them tax savings which will disappear a few years later will not move them to stimulatory action. And even if you manage to convincingly lie to them and convince them the tax cuts were permanent, only to pull the rug out a few years later, you can be sure that in future recessions the option of tax cuts as stimulatory policy will be seriously degraded and perhaps ineffectual.]
“The final and most serious argument is that whatever the short-term benefits, the tax cuts have left us with a long-term fiscal mess. When you ask administration folks about the deficit problem, they argue that it isn’t caused primarily by the cuts, but by rising health care costs and the aging baby boomers. That’s true, but it evades the fact that the tax cuts made the situation worse.
[Editor’s note: True. But it also takes political advantage of the fact that no big changes to Social Security or Medicare will be possible without cooperation with Democrats, therefore getting these tax cuts passed now was a political coup de grace for Republicans, giving them a strong chance to both have their cake and eat it, too. If you’re missing my logic here, let me explain it this way: Democrats will not be quickly persuaded to cut government spending and reduce the size of government, or significantly reform entitlement programs by radically changing their funding formulas. Hence, the more dire you make the situation by increasing the deficits with early tax cuts, the sooner and more sharply you can possibly get the Democrats to move in your direction. Really, the Democrats losing the White House in 2000 and Congress/Senate in 2002 means the Republicans have them by the balls when it comes to negotiating fiscal solutions to our long-term budget problems.]
“I realize it’s now practically illegal to have modulated views about anything related to the Bush administration, but I’d say it deserves the grades the National Journal economists gave it. What I don’t understand is why the administration doesn’t now pivot and say: O.K., we had a potential crisis. We prevented it. Now the recovery is in full swing. Let’s address the long-term problems. Let’s talk about the consequences of the aging baby boomers. Let’s talk about reforming the tax code to encourage domestic savings.
“After all, this election will probably hinge on Iraq anyway. The Bush folks might as well roll the dice with some attention-grabbing domestic ideas. That way if Bush is re-elected, he’ll have a mandate to do something big.”
[Again, true. But I think Bush will address these issues once the voters are paying attention. Bush ran on these issues in 2000; why wouldn’t he run on them again? And if he wins? Well, you can’t say goodnight to the liberal opposition just yet, but the conservatives’ position vis-a-vis tax cuts and reforming Social Security and Medicare certainly won’t be any weaker.]
Of course, if you don’t like Brooks’ (or mine) points, Josh Marshall has some minor quibbles with this analysis, as does Noam Scheiber. Andrew Sullivan responds with a modest defense of Bush’s intentions with the tax cuts. I could go a step further and lay into Scheiber and Marshall’s criticisms, but I’ll leave the collection of links alone for you guys to peruse and make up your own minds; you’ll probably agree with Scheiber and Marshall even after I’ve attacked their arguments, so I see no point in wasting my time pre-emptively. :-P
June 3rd, 2004 at 9:16:57 am
My chief boss had some really excellent comments on globalization and outsourcing.
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