Bush’s Bogus Budget and Tax Cuts
President Bush has now submitted his annual budget proposal to Congress. As usual it is full of rhetoric rather than economic analysis; and, also as usual, it doesn’t mean much. All Presidents present budgets and all Congresses alter them out of sight. This is even when the President is in the same party in control over on Capitol Hill. So the fact that Bush wants to make his tax cuts permanent and to cut Medicare funding should not unduly vex us yet. The House and Senate Republicans, especially those up for re-election, will probably want to blunt the anti-social nature of Bush’s agenda. Plus, as you all well know, Bush regularly leaves out of the budget any ongoing costs for his wars. He just announced last week that he will ask for an additional $120 billion to continue to prosecute those wars. So for all these reasons the budget he just published is bogus. It’s not worth the paper it’s written on!
So let’s just focus on those tax cuts Bush wants to make permanent, and why that’s a really bad idea. The Center on Budget and Policy Priorities has issued an excellent analysis on the impact of such permanence. You can find it here: Extending Expiring Tax Cuts and AMT Relief Would Cost $3.3 Trillion Through 2016, 2/6/06 Some immediate thoughts leap out at me when I read this report.
First: the tax cuts for the top 1% of earners, those with incomes of over $1 million a year, is more than the entire amount the Federal government spends on education. In other words restoring those taxes would double, hypothetically, the Department of Education’s budget. More to the point, the cost of the tax cuts is more than the combined budgets of the following government departments: agriculture, labor, education, veterans affairs, transportation, HUD, justice, state, interior, EPA, and energy. We are now financing all those departments with debt rather than tax revenues.
Second: the debt needed to finance the tax cuts will generate an additional $486 billion in interest payments over the next ten years. This, of copurse, is adding to the debt that needs to be financed!
Third: the cost of the tax cuts will accumulate to approximately $6.5 trillion [yes, TRILLION] over the next ten years.
Fourth: the tax cuts have failed as economic policy. The recovery from the last recession has been poor compared with prior experience. Bush claims that the tax cuts were the stimulus for growth. There is no evidence to support that claim. In fact, had his claim been true, then given the enormity of the tax cuts the economy should have just gone through an abnormally strong growth period instead of an anemic one. Then there is the knotty problem of the recovery in the 1990’s when we experienced strong growth coming out of a recession at a time when taxes had been raised. In Bush’s world the raising of taxes should have hampered growth. They obviously didn’t. Lastly, all the evidence suggests that tax cuts financed by borrowing, as the Bush cuts have been, reduce, not increase, future economic wealth because they crowd out investment. This means tyhat the Bush tax cuts will have the effect of reducing national income over the next ten years, just at the time we have to finance them.
