Two things were true during the 2000 presidential campaign: the U.S. was enjoying the largest surpluses in the nation’s history and George W. Bush didn’t want to return to the days when America ran deficits.
Way back then, Bush claimed that we “owe it to our children” to have a balanced budget. Just as importantly, he believed surpluses improved the “economic prospects of all Americans.”
Today, these promises seem like an eternity ago. Just two years after getting inaugurated, Bush has made quite a mess of things. The once growing surplus is gone, the U.S. is running huge deficits that are certain to get worse, economic growth is stagnant, and unemployment is stubbornly putting a drag on the economy.
What does Bush propose to do about it? More tax cuts for the wealthy, of course.
This week, after GOP moderates in the Senate balked at the White House’s new $726 billion tax cut plan, Bush drew a new line in the sand. The White House will accept $550 billion in tax cuts, but no less.
In a Rose Garden photo-op, Bush said his new, more modest tax cut plan (if you can call more than a half-trillion dollars in cuts “modest”) will “make sure our economy grows.”
Now, for my money, Bush’s credibility on the issue couldn’t be much worse. Every promise he’s made about the economy, every guarantee he’s made about tax cuts, every prediction he’s made about producing more jobs has been false. Before Bush took office, America enjoyed the strongest and longest economic growth in the nation’s history with the highest surpluses ever. Since then, Bush has turned lemonade into lemons.
Nevertheless, Bush is once again promising lower deficits. You’ll forgive me if I find the administration’s line when it comes to deficits a bit confusing. First, Bush said we could cut taxes without running deficits. That didn’t work out. Second, Bush said we’d run small deficits before returning to robust surpluses again. 0 for 2. Third, Bush said we’ll run ridiculously high deficits but it doesn’t matter because deficits aren’t so bad.
Now, there’s a new approach. Bush says we’ve run some record-high deficits but his tax cuts will help make them go away. You heard that right. The new White House line is that deficits, which occur as the government spends more than it takes in, can dissipate when we take in even less then we are now.
“In two years’ time, this nation has experienced war, a recession and a national emergency, which has caused our government to run a deficit,” Bush said at the Rose Garden speech selling his new tax cut plan. “The best way to reduce the deficit is with more growth in our economy, which means more revenues to our Treasury and less spending in Washington, D.C.”
In other words, let’s cut taxes more and they’ll pay for themselves by stimulating growth.
This is a breaktakingly bad idea. As my friends at the Center for Budget and Policy Priorities explained yesterday, Bush’s message is littered with errors and deceptions.
First, the CBPP points out that Bush still isn’t willing to accept responsibility for the role the 2001 tax cuts played on the current deficit. Bush’s speech said the deficit was caused by the war, the recession, and 9/11. He intentionally neglected to mention the role his own tax policies played in creating the situation we’re in.
Second, the idea that Bush’s new tax cuts would actually reduce the deficit is folly. The non-partisan Congressional Budget Office has said the economic effects of the new tax cuts on the economy “would probably be small” and that the deficit will remain just as large as it’s projected to be.
As the CBPP notes, even the White House’s own budget projections don’t expect the tax cuts to pay for themselves through stronger growth. “To the contrary, the budget projects that under the President’s policies, federal revenues will grow at a slower annual rate between 2001 and 2008 than in any comparable period over the last five decades…. In addition, the budget projects that under Bush policies, the budget will be in deficit every year for the next 50 years.”
Even N. Gregory Mankiw, whom Bush selected to be chairman of the White House Council of Economic Advisors, has argued for years against the idea that tax cuts will shrink deficits.
In Mankiw’s textbook, “Principles of Economics,” the economist said when the Reagan administration tried this approach in the 1980s, it was an example of “fad economics” and came after the administration relied on the advice of “charlatans and cranks.”
Unfortunately, the charlatans and cranks are back, and they haven’t learned from their mistakes.