Bush Tax Cuts May Save Democrats From Themselves

What shall we call it? Soft landing, hard landing, recession, depression, correction, readjustment, downturn?

How about: all of the above?

The standard rule is: “It’s a recession if my neighbor loses his job, a depression if I lose mine.”

A jump in the jobless rate, and a sharp decline in the Consumer Confidence Index, indicates that something nasty is afoot.

The jittery Federal Reserve Board on Wednesday cut interest rates a whopping half percent only three weeks after an equal reduction.

Fed Chairman Alan Greenspan says, “We have had a dramatic slowing down, and we are probably very close to zero at this moment.” He says a Bush tax cut also would be appropriate.

Robert Gordon, economics professor at Northwestern University, is more blunt. “A recession is now almost inevitable.”

It is fair to ask if Greenspan is being too hasty with interest rate cuts. He is generally credited with being too slow in 1990 when the senior Bush was president.

The Commerce Department reports the overall economy grew 5 percent last year—statistically sensational.

However, a quarterly breakdown is disturbing. It dropped to 2 percent in the third quarter, and 1.4 percent in the last period. A 3 percent rate is judged to be the highest number compatible with inflation.

A two-quarter decline in the gross domestic product is considered a recession. Some economists are calling today’s situation a “soft landing.”

The present quarter is expected to decline again – a hard landing by anyone’s reckoning.

William Dudley, chief economist at Goldman Sachs, says the downturn-cum recession “feels bad because it is so fast, but because it’s so fast, it won’t last long.”

A cute play on words, but Americans want to know who’s on first.

Raising interest rates slow down inflation because it discourages loans for factory expansion and jobs. Cutting interest makes it easier for industry to borrow money for expansion.

Juggling interest rates is called “monetary policy ” – the management of money. Yo-yo economics is a more accurate description. Borrowers get jerked around trying to cope with short-term situations.

Bankers love credit management.

More effective in the long run is “fiscal policy” – the management of process. Entrepreneurs want rules today to be the rules tomorrow.

Managers love process stability.

It must be said that White House presidents have no control of the push and pull of economics. Thus, they deserve little blame or credit for the economy.

Capitalism drives the economy -- encouraged or discouraged by congressional actions on taxes, spending and regulation. People want a king, so presidents are the focus of attention.

Clinton wanted social spending and got the biggest tax increase in history – by Al Gore’s tie- breaking vote -- when Democrats were in the majority.

The Newt Gingrich “contract with America” cut spending, balanced the budget and reformed welfare. Consequently, the huge Clinton tax hike produced budget surpluses.

Clinton – with Greenspan keeping the lid on inflation -- deserves credit for the unintended consequence of a surplus supposedly amounting to $5.6 trillion now and growing at an estimated $1 trillion a year.

Nevertheless, in the last two quarters of Clinton’s administration, Fed manipulation of the money supply could not offset global, economic problems. The latter still festers.

President Bush, by instinct and good advice, wants Congress to reduce the tax burden that has become a liability in the competitive world market. He believes a cut of $1.6 trillion over the next ten years would be about right.

Liberal Democrats are aghast. Yet, realities can’t be ignored. Of the surplus touted, $2.5 trillion consists of a loan owed the Social Security Trust Fund.

Bush would return Social Security money and thereafter leave that kitty alone. This leaves $3.1 trillion in Congress’ toy box. Bush’s tax cut – amounting to $160 billion a year – is chump change by congressional standard.

Above all, any cut in income taxes should be for those paying taxes. Yes, those who pay more, get more. Good!

Middle class workers (the middle two “quintiles” of earners) constitute 40 percent of the citizenry but pay 80 percent of the taxes.

Bush proposes to split any remaining surplus each year after the tax cut on (1) reducing the national debt and (2) increasing spending on education, defense and Medicare reform.

If Bush can be blessed with a Republican Congress for at least four years, he may be able to save Democrats from themselves.

PARTING SHOTS

Bill Clinton wants taxpayers to foot the bill for a $650,000 per year office suite in a Manhattan skyscraper. With that kind of money, he could buy the whole town of Hope, Arkansas.

* * *

Dubya had Teddy in for a White House movie. Never has so much political schmoozing been attempted with so little popcorn.

Lindsey Williams is a Sun-Herald columnist

Williams – jobs

Sunday – Feb. 4, 2001

6 col head and byline logo for editorial column