Opinion pieces and speeches by EPI staff and associates
[ THIS PIECE HAS BEEN POSTED TO VIEWPOINTS ON JUNE 23, 2003 ]
Mapping a New Economic Roadmap
President Bush and his top aides have been on the road, from Lima, Ohio to New York City, stumping for his tax cut plan. Although the President calls it his “Jobs and Growth Plan,” it would not generate meaningful amounts of either. Despite the President’s claims to the contrary, his tax cuts would not be good for families or the economy, would prove unfair and irresponsible, and would not spur the immediate growth the economy so urgently needs.
For one thing, it provides no cure for the ailing jobs market. Since the President took office, the private sector has lost 2.7 million jobs. The unemployment rate has been stuck at around six percent so long that wages are now falling behind inflation. One-fifth of unemployed Americans have been out of work more than six months. Unfortunately, like a medieval doctor applying leeches, the President’s plan will weaken the economy by creating large chronic deficits. Mainstream forecasters predict it will cost the economy more than 750,000 jobs over the course of 10 years.
Not only that, the plan will not produce meaningful short-term growth, just long-term harm. Less than five percent of the proposed $726 billion tax cut would take effect in 2003, when jobs are needed most. The administration itself admits that their plan would put the budget in deficit for the next 75 years. Without these tax cuts, the budget would return to surplus by 2004. The dividend tax cut at the heart of the President’s plan will have little positive short- or long-term effect, generating only nine cents worth of stimulus for every dollar spent.
Most important, the plan will not put money into the hands of ordinary Americans, where it would boost growth by being spent. In fact, President Bush is offering a fancy gift for the wealthy hastily wrapped in working-class paper. The top 20 percent of taxpayers will reap 94 percent of the benefits from accelerating the income tax rate cuts, with 54 percent of those benefits going to the top one percent. These, obviously, are not the Americans who need relief. White House advisors claim that these giveaways will trickle down. What will more likely occur is a repeat of what happened under the last trickle-down president: the rich will get richer while everyone else’s income and living standards stagnate.
It’s no surprise that the public isn’t buying this unfair, unwise plan, and neither are the experts. Skeptics include the Committee on Economic Development, the Republican-led Congressional Budget Office, the International Monetary Fund, leading investment house Goldman Sachs, 10 prominent Nobel economists, and more than 450 of their colleagues in the economics field.
Although opposition by a few moderate GOP senators has been dominating the news, the idea isn’t popular with the Republican rank-and-file either: A Wall Street Journal poll has found that while 56 percent of Republicans agree that “strengthening the economy” is a top priority, only seven percent think tax cuts are.
The President is right about one thing, though: our destination should be jobs and growth. But he’s using the wrong roadmap to get us there. The right one would contain two elements: First, government spending on projects that will get that money into the economy quickly and, second, tax relief to those who will spend it, namely low- and middle-income households. As government and individual consumption rises, businesses will increase investment and jobs.
But, you’re thinking, won’t this create a deficit? Yes, but just as there is good cholesterol and bad cholesterol, there are good deficits and bad ones. Bad deficits – the kind that would be created by the Bush tax cuts – drag on for extended periods of time into periods when unemployment is low. A good deficit, in contrast, is the result of an immediate, one-time boost to the economy designed to create jobs and growth in 2003, leaving the long-term budget unaffected.
How can we get there? Extending unemployment benefits for those currently out of work is critical, and getting fiscal relief to cash-strapped states will head off cuts to education and important social programs. According to a new report by the National Conference of State Legislatures, states are facing budget shortfalls of $53.5 billion. Every dollar spent on state aid will generate 10 times as much stimulus as the Bush dividend tax cut would.
Such ideas are just sound economics. Meanwhile, Congress is now moving ahead on phase two of the tax cut debate. Here’s hoping they follow the right map.
Lawrence Mishel is president of the Economic Policy Institute.
[POSTED TO VIEWPOINTS ON JULY 10, 2003 ]