“Seldom have so few gotten so much from so many.” That might be the motto of President Bush’s proposed tax cuts.
As the nation entered the new millennium, it faced three problems. First, the economy was slowly going into a recession, with a stock market bubble about to burst. Second, inequality was growing. While the Nineties had at last arrested the decline in income of those at the bottom of the income distribution, the fruits of that decade’s growth went disproportionately to the rich. Third, there were long-range problems, including Medicare and Social Security systems that were underfunded and an economy that had become addicted to living beyond its means, borrowing more than a billion dollars a day from abroad.
While Bush inherited these challenges, he started with one advantage that Clinton had not had. Bush senior had bequeathed to Clinton a serious deficit—8 percent of GDP, if one excludes the money that was supposed to be going into Social Security. But Clinton bequeathed to Bush junior large surpluses. These surpluses might have been used to shore up our Social Security and Medicare system. They might have provided badly needed new benefits, like long-term care and prescription drugs. They might have been used to repair America’s infrastructure, our aging highways, bridges, and airports. The burst of growth in the Nineties was based on new technologies and progress in science; and yet, even here, we underinvested, because of pressure to meet deficit targets.
As President Bush took office, he took advantage of the economic downturn to push for a tax cut, but it was a tax cut that was not designed to stimulate the economy—and it did not do so to any appreciable degree. Two years later, the economy is still languishing. The cost of Bush’s mistake has been enormous. In 2001 alone, we had a gap of some 3 percent between the economy’s potential and what it actually produced, which translates into a loss of $300 billion. And there is strong evidence that as success breeds success, failure breeds failure: if the economy’s output is lower today because of this mismanagement of national economic policy, it will be lower five, ten, twenty years from now, since some of the lost output would have been spent on investments that would have enhanced productivity.
The first order of business—then and now—should be a tax cut that stimulates the economy. All the better if we can have a stimulus that not only enhances growth but also addresses our long-term problems, including our growing inequality. In fact, it must have been hard for Bush to design a tax program that cost so much in revenue while at the same time doing so little to stimulate the economy.
Two arguments are being made to defend Bush. The first holds that he is not to be blamed for the country’s current economic difficulties: Who could have…
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