By Robert H. Linnell
President Bush is working hard promoting his $726 billion tax cut law that he says will create one million new jobs. This large cut will not make it through Congress but the GOP is pushing hard for $550 billion which has been voted in the House. Meantime the Senate wants a $350 billion cut. It seems certain that a tax cut bill will be worked out and signed by the President in the next few weeks.
The President’s Council of Economic Advisors predicts if the tax cut is enacted it will create a million new jobs. The Council is, of course, part of the President’s office and its opinions must be viewed as having a political motive. The Council does not reveal the assumptions and methodology used in arriving at its job creation numbers. Even if the figures turn out to be correct, the cost per each job is over one-half million dollars. It might be cheaper to just give workers a pension for life requiring social service work such as building Habitat houses!
But many of the nation’s most distinguished economists and leading analysts say the tax cuts will create few, if any new jobs, would reduce long term growth and exacerbate an out-of-control federal debt.*
So where does the truth lie and what is likely to happen? Reducing taxes has been a defining issue for President Bush. In the 2000 campaign his major platform was based on a tax cut of close to $2 trillion (giving the surplus back to those who paid it) saying it would improve the economy and leave plenty of the alleged $5.6 trillion surplus to meet other national needs. But the economy tanked and the surplus that was never there became a deficit. The Bush campaign rhetoric on taxes and the economy has proven to be wrong and a disaster for the nation. The President says this is because of 9/11 and the war with Iraq but that is too simplistic an explanation. Total government debt this year will increase by over $500 billion, the largest in history and red ink will plague the nation as far as the eye can see. There is grave danger to the future of Social Security and Medicare as the baby boomers retire.
A handful of Republican Senators are worried about the deficits and, in spite of threats from the White House, are holding out for $350 billion maximum tax cut. To achieve this the Senate will probably use a “sunset” gimmick, a favorite trick of the GOP Congress. This maneuver will cut some taxes now but then bring them back in two or three years, thus keeping the ten year cost down (but with the hope that political forces not to “increase” taxes will keep the cuts indefinitely). Even the latest $350 billion Senate bill would give an average $64,400, tax break in 2003 for those with incomes over $1 million and the middle income worker only gets an average of $233.**
Another analysis indicates that extending unemployment***, which President and the GOP have refused to consider, would be a very effective and low cost way to stimulate the economy.
The largest unintended consequence of more tax cuts is rarely mentioned. The dollar is weakening (worth less); that is, it takes more dollars to buy a Euro or a Yen, etc. American products are cheaper abroad since it takes less of their currency to buy our products. Nonetheless our trade deficit has reached record levels, we are buying more foreign goods than we sell abroad. Nothing new, we have had a trade deficit for years, but its growth is cause for alarm.
How is this deficit funded? We are selling America. About a third of federal marketable debt is owned by foreigners and they invest their extra dollars in our stock market. For the last three months foreigners have decreased their buying in the U.S. stock market by about a third, one factor in its poor performance and the dollar’s decline in value. We are very dependent on foreigners to support our growing deficit. David P. Bowers of Merrill Lynch says, “What the rest or the world is being asked to fund is very different from what they were being asked to fund three years ago. Three years ago they were being asked to fund a private sector miracle. Now they are being asked to fund Bush’s tax cuts and the war on Iraq.” Economist John P. Rathbone comments that the U.S. is “taking on the financial characteristics of a banana republic.” This is a terrible future for America. We don’t need any additional tax cuts. We need responsible government.
* Ten Noble prize winning economists, The Committee for Economic Development
(Business and Education leaders), International Monetary Fund, former government fiscal leaders, the (the non-partisan) Congressional Budget Office, even Federal Reserve leader Alan Greenspan.
** Center on Budget and Policy Priorities () and Urban Institiute-Brookings Institution Tax Policy Center (www.taxpolicycenter.org)
***Temporary Emergency Unemployment Compensation, a program providing income to those who have exhausted their regular unemployment.
“Reproduced with permission from: www.my-oped.com.”