Friday, August 13, 2004

A Brief History

Lest we forget, the following is a brief history of Bush economic policy as gleaned from Paul Krugman's "Great Unraveling"

October, 2000
Assumed a $4.6 trillion surplus (most optimistic)
Stated that "nearly a trillion" to go for new programs. $474.6 billion in published campaign material. (verbal exaggeration)
Stated a quarter or $1.3 trillion to tax cuts. (4.6 / 4 = 1.15, 4.6 / 1.3 = 3.5) So actually is more than a third to tax cuts.

February, 2001
Now assuming a surplus of $5.6 trillion (where did that extra trillion come from?)

Pre Tax Cut
Payroll tax , flat rate of 15.3% on all income up to $70,000. Main tax for 4 out of 5 families.
Income tax, < 10 % for most families, but 30% for $1,000,000 or more.
Inheritance tax, only applies to estates of $675,000 or more (1,350,000 for couples). Only 2% of estates pay any tax

Post Tax Cut
Payroll tax, untouched.
Income tax, rate reduced across the board but greater proportional rate reduction on the high end.
Inheritance tax, under attack but not gone yet.
Clinton years disprove the premise that taxes are a drag on economy. Lower brackets get income tax reduction but they are still paying a 15.3% payroll tax that millionaires see as a 1% tax. This is clearly a tax break for rich folks, the poor folks get crumbs.

March, 2001
Congress Joint Tax Committee runs the numbers on the Bush tax cut plan. It is now a $2.5 trillion tax cut instead of $1.3 trillion.
Since these cuts are phased in, Bush also asks for a 100 billion in immediate cuts. Pushes total tax cut up towards $2.6 trillion.
Bush states that 17.4 million small business owners and entrepreneurs will benefit by dropping top rate from 39.6 to 33 percent. But only 1 million people actually pay at the top rate, few of them small business owners. Only 1 percent of small business owners will benefit. (Such candor from our leader)

May, 2001
Gas prices are up. Bush says the 100 billion cut is the answer. Poorest people who are most affected will see none of it.
Tax legislation is signed. It is full of gimmicks to keep it looking affordable. Even though biggest cuts are put late in the plan and the repeal of inheritance tax put off to 2010, they still needed to sunset the whole thing in 2011 to bring in.

June, 2001
Enron-driven electricity prices are up. Bush says no short term answers but drilling for oil in ANWR is the answer. Also says 100 billion cut will help people buy electricity.

August, 2001
Congressional Budget Office reports that the surplus is gone and a deficit is looming.

December, 2001
Deficits clearly projected in the future. That's without considering a recession or military spending.

February, 2002
Bush proposes an additional $600 billion in cuts. Military costs are increasing but not in proportion to the actual threat from Al-Qaida.

February, 2003
In the 2001 budget, a $262 billion surplus in 2004 predicted.
In the 2002 budget, a $14 billion deficit in 2004 predicted.
In the 2003 budget, a $307 billion deficit in 2004 predicted.
Similar deficits predicted for years following 2004.
Bush is asking for a $674 billion tax cut immediately and a $1.5 trillion cut over the next decade.
It's so bad that the OMB has stopped issuing 10-year projections and only offers 5-year ones.

1 comment:

Kendall Miller said...

The first question is why cut taxes at all? The Clinton years showed that the economy can do just fine with the taxes as they were. That economy generated the surplus and high income folks had plenty of money. (Many of them, way more than their share.) Having a surplus was a good way to ease off on taxes. Especially for the middle income folks for whom the payroll tax was a significant factor.

Then the economy tanked. Dot-com bubble burst and ponzi-accounting caught up with the perpetrators. But it wasn't the people in the top incomes that lost jobs and medical insurance. And it's consumption that makes markets, jobs, and fortunes, not extra cash in the pockets of people for whom money is just a way of keeping score. Unfortunately that's where the real tax cuts went. The rest of us just got enough to allow the administration to be able to make rosy statements that sounded good. And no one got very much very fast. It was clear the backend loaded tax giveaway had nothing in it to aid the economy anytime soon.

So they sweetened it a little for the middle class with some short term credits and rate adjustments. Unfortunately there just wasn't enough money to do a serious job for the middle class without compromising the impending future giveaway to the rich. So all the middle class got was enough money to justify talking points and political cover.

The sad thing about it all is that it is so wrong-headed. In a strong economy the high income folks make more money than a depressed one. It is in their best interest for the consumer class to have plenty of disposable income. But a nice giveaway was more tempting than a buck you actually have to compete in the marketplace to get.