I have always considered myself a fiscal conservative; I firmly believe the taxes removed from my paycheck are inordinately high. Thus, I am pleased when a politician comes along and says tax cutting is a priority. What scares me is when it becomes apparent that tax cuts are the politician’s only priority, especially when he is the president of the United States.
The $1.35 trillion tax reduction plan passed last spring was the largest (second largest proportionately) in American history, and had absolutely no bearing on our position as a nation.
Cutting taxes should be done in a rational and feasible way. The Bush administration’s tax cut has neither of these qualities. It is difficult for me to understand the rationale behind such a huge cut in government revenues at time when the economy is shaky and other areas desperately need funding. Paying down the national debt, bolstering Social Security and increasing health and educational spending are all things the lost tax revenue could be funding.
Of course, tax relief is sorely needed; for the past few years the government has amassed giant budget surpluses, which amount to overpayments by the American people. This money should be returned to the taxpayers.
Even so, there must be a more prudent way to cut taxes than the Bush administration has shown us. The president seems to have the idea that he can fit both his oversized tax cut and funding for programs that are important to American citizens into an already tight budget. It’s not plausible. Bush would like to increase spending for defense and education while cutting funding in nearly all other areas. However, given the void in revenue created by the tax cut, there is little room even for these meager goals.
The much touted government surplus isn’t available to cover the gap because it has shrunk from an estimated $281 billion to $158 billion, a decrease of $123 billion since Bush took office. The decrease can be blamed both on the tax cut and on fewer corporate tax revenues flowing into government coffers. Around $29 billion of the now-spent surplus was attributed to excess Medicare receipts; in using these funds the administration broke a tacit agreement with Congressional members of both parties.
The president has also sworn not to touch the Social Security surplus, a claim he has only been able to keep by using somewhat dubious accounting techniques. Some congressional Democrats claim the government has already used some $5 billion in Social Security money this year.
Removing the Social Security portion of the remaining surplus brings the total to approximately $1 billion. It is important to note that most of last year’s surplus went to pork-barrel projects, and I doubt that this year’s disappearing funds will stop Congress from sending money back to the districts.
Aside from his ideological principle of tax relief, President Bush also sold the tax cut as a means to revive our sluggish economy. It’s doubtful that, after nine months of slowed growth, the rebate checks now arriving will have enough of an impact to put the economy back on track.
Recent comments by Federal Reserve Board chairman Alan Greenspan suggest there is no near-term solution to our economic woes. At its most recent meeting, the Fed cut the federal funds rate – the rate banks charge each other for overnight loans – for the seventh time this year.
Chairman Greenspan also mentioned that while consumer confidence remains somewhat solid, corporate spending has dwindled. Companies are not spending money on capital equipment at the same level they were during the 90s boom.
Another drag on the economy is the fact that corporate profits this year are dismal. Earnings weakness has led to a battered stock market, which lately has been anemic on its good days. If poor corporate performance and a tanking stock market eat away at consumer confidence – which has been the only thing keeping us from a recession – the economy won’t recover easily, regardless of the $600 rebate checks.
President Bush has placed himself in a precarious position by making his tax cut the centerpiece of the budget. If it fails to live up to its billing, we will all feel the repercussions. To accommodate the deep cuts, Bush will either have to break more promises or face a deficit. A reasonable tax cut would have left more room for situations such as this. The looming budget battle is shaping up to be particularly acrimonious. I can only hope President Bush has a better plan to re-tool the economy than what he has shown us so far.
