Government makes up for lost revenue by borrowing
Sunday, October 19, 2003
seattlepi.nwsource.com
By PAUL KRUGMAN
SYNDICATED COLUMNIST
"What we have here is a form of looting." So says George
Akerlof, a Nobel laureate in economics, of the Bush
administration's budget policies -- and he's right. With
startling speed, we've blown right through the usual
concerns about budget deficits -- about their effects on
interest rates and economic growth -- and into a range
where the very solvency of the federal government is at
stake. Almost every expert not on the administration's
payroll now sees budget deficits equal to about a quarter of
government spending for the next decade, and getting
worse after that.
Yet the administration insists there's no problem, that
economic growth will solve everything painlessly. And that
puts those who want to stop the looting -- which should
include anyone who wants this country to avoid a Latin
American-style fiscal crisis, somewhere down the road -- in
a difficult position. Faced with a what-me-worry president,
how do you avoid sounding like a dour party pooper?
One answer is to explain that the administration's tax cuts
are, in a fundamental sense, phony, because the
government is simply borrowing to make up for the loss of
revenue. In 2004, the typical family will pay about $700
less in taxes than it would have without the Bush tax cuts
-- but meanwhile, the government will run up about $1,500
in debt on that family's behalf.
George W. Bush is like a man who tells you that he's
bought you a fancy new TV set for Christmas, but neglects
to tell you that he charged it to your credit card, and that
while he was at it he also used the card to buy some stuff
for himself. Eventually, the bill will come due -- and it will
be your problem, not his.
Still, those who want to restore fiscal sanity probably need
to frame their proposals in a way that neutralizes some of
the administration's demagoguery. In particular, they
probably shouldn't propose a rollback of all of the Bush tax
cuts.
Here's why: While the central thrust of both the 2001 and
the 2003 tax cuts was to cut taxes on the wealthy, the bills
also included provisions that provided fairly large tax cuts
to some -- but only some -- middle-income families. Chief
among these were child tax credits and a "cutout" that
reduced the tax rate on some income to 10 percent from 15
percent.
These middle-class tax cuts were designed to create a
"sweet spot" that would allow the administration to point to
"typical" families that received big tax cuts. If a
middle-income family had two or more children 17 or
younger and an income just high enough to take full
advantage of the provisions, it did get a significant tax cut.
And such families played a big role in selling the overall
package.
So if a Democratic candidate proposes a total rollback of the
Bush tax cuts, he'll be offering an easy target:
Administration spokespeople will be able to provide
reporters with carefully chosen examples of middle-income
families who would lose $1,500 or $2,000 a year from
tax-cut repeal. By leaving the child tax credits and the
cutout in place while proposing to repeal the rest,
contenders will recapture most of the revenue lost because
of the tax cuts, while making the job of the administration
propagandists that much harder.
Purists will raise two objections. The first is that an
incomplete rollback of the Bush tax cuts won't be enough
to restore long-run solvency. In fact, even a full rollback
wouldn't be enough. According to my rough calculations,
keeping the child credits and the cutout while rolling back
the rest would close only about half the fiscal gap. But it
would be a lot better than current policy.
The other objection is that the tricks used to sell the Bush
tax cuts have made an already messy tax system, full of
special breaks for particular classes of taxpayers, even
messier. Shouldn't we favor a reform that cleans it up?
In principle, the answer is yes. But an ambitious reform
plan would be demagogued and portrayed as a tax increase
for the middle class. My guess is that we should propose a
selective rollback as the first step, with broader reform to
follow.
Will someone be able to find the political sweet spot, the
combination of fiscal responsibility and electoral smarts
that brings the looting to an end? The future of the nation
depends on the answer.
Paul Krugman is a columnist for The New York Times. Copyright 2003
New York Times News Service. E-mail: krugman@nytimes.com |
