A Tax Cut Plan Rooted in the Bush Pedigree
"What this complicated proposal would stimulate is not the
workaday economy but the already huge gap between
the wealthiest Americans and everyone else."
By Kevin Phillips, Kevin Phillips is the author, most recently, of
"Wealth and Democracy: A Political History of the American Rich."
latimes.com
January 12, 2003
E-mail story
ECONOMY
WASHINGTON -- For those who ever believed in it,
Washington "compassionate conservatism" just took off
its mask. Federal deficits are soaring. State finances are
sinking into their biggest crisis since the Great
Depression. So, what does the Bush White House
propose?
No serious help for the states. Nor is there relief from
payroll taxes to encourage job creation. Sen. John
McCain (R-Ariz.) has rightly remarked on the lack of
compassion in the administration's economic stimulus
package. Its centerpiece, costing $364 billion of the $674
billion to be spent over 10 years, is to reduce or end
taxation of dividends, some 40% of which annually goes
to the top 1% of wealthy Americans. What this
complicated proposal would stimulate is not the
workaday economy but the already huge gap between
the wealthiest Americans and everyone else.
Historically, this is the great Republican Achilles' heel --
favoritism to the rich. The 2003 Bush tax cut proposal is the biggest, baldest example since the 1920s, when
Treasury Secretary Andrew Mellon decided that if
Congress wouldn't let him cut income tax rates enough
he'd just start giving money back, to individuals and
corporations alike, through Treasury refunds, rebates
and remissions. Given this recurrent thread over eight
decades of GOP fiscal history, White House and
congressional Republicans may be setting up a
dangerous issue for the 2004 elections.
Still, you have to admire GOP chutzpah. Boldness often pays. Republicans are
Gambling that ordinary Americans are too numb or too dumb -- either one works --
to go beyond the 20-second sound bites to see who gets the meringue and who
gets the filet mignon. They're gambling that John and Jane Q. Public won't
comprehend a thinly disguised bailout of upper-income stock investors as another
round of old GOP trickle-down economics.
It's been 10 years since the first President Bush was voted out of the White House
on a wave of public indignation at his economic policies -- in particular, over how
he had no sense of what was happening on Main Street. All he could ever talk
about was cutting the capital gains tax rate on behalf of investors.
You'd think that anyone at least 40 years old would remember that myopia. You'd
think they'd remember the old adage about the acorn not falling too far from the
tree. Because that's the economics involved: Like father, like son. In fact, we can
go further: Like great-grandfather, like grandfather, like father, like uncles, like
siblings, like son.
The predominant history of the Bush family for 100 years has
been to work in the investment business (sometimes with an oil tilt); interpret the
economy through the lens of investment; and tailor economic policies to favor
friends, neighbors and relatives in the investment business.
If a president who came out of the widget industry spent all his time trying to
promote the widget business, it would be obvious -- and it would raise major ethical
problems. But the magnitude of the Bushes' investment involvement and bias is too
little understood.
Great-grandfather George H. Walker was the president of two major New York
investment firms: G.H. Walker & Co. and W.A. Harriman and Co. Grandfather
Prescott Bush was the managing partner of Brown Bros., Harriman & Co.
Presidential uncles Jonathan and Prescott Jr. have been, respectively, the heads of
small investment firms named J. Bush & Co. and Prescott Bush & Co. Prescott
Bush Jr. has also been closely involved with Asset Management International
Financing and Settlement Ltd. Presidential brother Marvin runs hedge funds at
investment company Winston Partners. Presidential brother Neil started an
investment deal in Austin, and both George H.W. and George W. Bush have been
in the kind of oil business that is largely driven by tax shelters and financing from
friends and relatives.
Such finance doesn't look out for widows and orphans.
Besides President Bush's
problems with the Securities and Exchange Commission over his sale of Harken
Energy stock, his uncle, Scott Pierce, resigned as president of the now-defunct
securities firm E.F. Hutton after pleading guilty on behalf of the firm to
check-kiting. Brother Neil was fined because of his culpability in the Silverado
savings and loan debacle in Colorado in the 1980s.
A Tokyo investment firm that
Hired Uncle Prescott as an advisor in 1989 was identified by Tokyo police as a
mob front. The point is simply that the average American could be forgiven for
thinking that the Bush motto is "public service means private opportunity."
Which is why this latest embrace of "investment" is not only unfair but the policy
equivalent of self-dealing. When the Bushes start talking about investment,
ordinary folks should start circling their Chevrolets. But can such a mix of
historical evidence ever make it through the terrorism and war milieu now in
operation? Can voters smell greed through the reek of aviation gasoline in the
Persian Gulf?
In a sense, war itself is becoming a shelter for would-be tax shelters When World
War II broke out, public and congressional skepticism still reflected the role of
finance in the 1929 Wall Street crash. Taxes on the dividend income of the rich
were high, so, as war profits flowed in, many companies cut dividends and used
the capital to pump up their stock prices. The higher prices would translate into
capital gains, which were taxed at a lower rate. The partial remedy was to tax
excess corporate profits, but critics said that even this did not reach subtly retained
income.
Instead of becoming a spur to rein in excess profits, flying bullets have become
covering fire for political opportunism: Bill Clinton's 1998 cruise missile attacks on
Sudan and Afghanistan timed to divert attention from his personal peccadilloes,
Republican willingness to wag the dog to take the focus off class-driven
economics. Meanwhile, no wartime excess-profits tax has been imposed on
corporate America since the United Nations endorsed and launched the Korean
War in 1950, and we can assume that the Bush administration will not request one if the international body signs off on an invasion of Iraq.
Rather, the administration
is seeking to gut the dividend tax under the dubious pretense of stimulus and
long-term growth -- possibly even in the name of making the United States a nation
worthy of the men and women in uniform who may be fighting and dying in the
Middle East (as Congress weighs this fiscal shamelessness).
Will the Democrats, who in recent years have baa-baaed around Washington like
clueless sheep on an Idaho hillside, somehow turn and swing this issue like a
political power saw? They show some movement, but they have displayed too little
knowledge of their own history -- Thomas Jefferson's fear of the money power;
Franklin D. Roosevelt's bold use of the inheritance tax; Harry S. Truman's
lambasting of Wall Street -- to assume that they can call up a memory of the
Republican fiscal heritage, however vulnerable.
Yet, the vulnerability is potentially huge. As Bush fiscal policy suns itself in the
mentality of Coolidge-Hoover-era Treasury Secretary Mellon, it disdains the better
legacies of other GOP presidents. Dwight D. Eisenhower favored taxes on excess
wartime profits; Richard Nixon signed legislation imposing a higher top tax rate on
unearned, rather than earned, income; Ronald Reagan's 1986 tax reform insisted
on equal top rates for earned versus stock-market income, eliminating the
preference for capital gains.
The first President Bush was the succeeding
president who cried incessantly to restore capital-gains favoritism to investors. We
should also mention Theodore Roosevelt, who called in peacetime for the
progressive tax on large inherited fortunes that George W. Bush works to eliminate
in wartime; and Abraham Lincoln, whose wartime taxes covered dividend income.
The Lincoln-Roosevelt-Eisenhower-Nixon-Reagan viewpoint still commands a fair
minority of the Republican rank and file, if not among its Bush-era leadership. The
only major Republican voice speaking for the old party, however, is that of
McCain, who said in December, "We probably need to have tax cuts directed at
lower-income Americans, such as payroll-tax reductions. ... [L]ow-income
Americans in totality bear a much higher tax burden than wealthy Americans do;
therefore, there is a growing gap between the wealthiest and poorest Americans."
He scoffed at the notion that Bush's tax policy embodies compassionate
conservatism. McCain's father and grandfather were four-star admirals; he
learned a different tradition than that of the tax-shelter salesmen.
It is probably too much to expect Republican McCain to lead the fight against the
kind of arrogant misprioritization that earmarks $364 billion, out of a $674 billion
economic "stimulus" program, for ending the taxation of stock market dividends.
But surely the Democrats must. If they're afraid to fight under the old Democratic
banners of Jefferson, Jackson, FDR and Truman, this time they can invoke the
Republican fiscal precedents of Lincoln, Teddy Roosevelt, Eisenhower, Nixon and
Reagan. |
