It’s time for more federal tax cuts, said President Bush during a recent radio
address. This policy will help to balance the federal budget, he explained.
Otherwise, there will be fiscal disorder in the land. The president cited an
era of Vietnam War spending and domestic spending as a case in point.
Then, overspending on the home front helped lead to increasing joblessness,
expanding deficits and rising inflation, he said. The president doesn’t have to
substantiate his claims about past economic turbulence in the U.S., reported as
truth in an AP article of August 18.
Crucially, the Vietnam War remains a reference point for current events. With
an eye and ear to invading Iraq for a “regime change,” the Bush administration
recalls the successful mass protests against U.S. militarism and racism during
Currently, Bush’s income-tax cut has helped rich people become even richer.
Their gain is, well, good for them.
Flush with more cash, the rich want more. That’s all their greedy little brains
On that note, the president’s tax cut and more war spending has helped to turn
what had been a federal budget surplus into a deficit. Decreasing tax revenues
and spending more taxpayer dollars on the war machine as he has done with the
help of Congress will result in budget deficits every time.
Bush is following in the footsteps of President Reagan. The federal deficit
that the former actor created in the 1980s, however, was larger than the one Bush
has helped to fashion—so far.
One of the president’s current policy proposals being discussed is the reduction
of taxes on capital gains, i.e., sales of assets such as stocks. Supposedly, this
will help to invigorate the economy by boosting investor confidence in the market.
However, it is unclear how such a tax cut will reduce the growing federal deficit.
Recall the fall in tech stock prices that began in March 2000 which set in motion
a decline in capital gains tax revenue.
The federal budget surplus was due partly to the booming stock market. It increased
capital gains tax revenue.
The party was hearty while it lasted. Yet this upward market/tax trend was
unsustainable and bound to end, said economist Dean Baker with the Center for
Economic and Policy Research http://www.cepr.net/.
Meanwhile, a non-debate on public and private debt lurks in the background
of the president’s proposals for tax cuts. I mean that the federal government
can't go bankrupt, while private firms and individuals can and do go bankrupt.
This non-debate assumes that public debt is automatically evil. Private debt
gets a wink and a nod here.
But consider two sectors of the U.S. economy with high private debt loads.
They are businesses and consumers.
We turn to consumer debt. It fueled the record U.S. economic expansion during
the 1990s, due partly to low hourly wages and high living costs.
Thus, last decade, millions of U.S. households maintained their ability to
pay for food, rent and transport by spending borrowed money. At the same time,
the federal budget was going into surplus as the stock market surged.
Many people on Main Street were forced to increase their borrowing. They included
the child care worker going to her second job to help pay the bills.
As consumer debt rose, the federal debt fell. When the U.S. economy was expanding,
federal spending wasn’t needed as it is now to spark the economy.
Last decade private indebtedness led the way to growth in the nation. Record
levels of credit creation for businesses and consumers were a main motor of the
But that expansion officially ended in March 2001. Since then the economy has
Presumably, cutting domestic federal spending now will bring fiscal discipline
to the national government. Yet the president’s plan for more tax cuts for high-income
earners could well extend the recession by taking money out of the consumer economy.
In certain sectors, business activity is in decline. Employees’ hours and jobs
are being cut.
During such a period of slow/no growth, people have less money to spend. The
Aug. 16 Wall Street Journal noted Labor Department data concerning this trend.
“U.S. workers suffered the biggest decline in inflation-adjusted average weekly
earnings in nearly 12 years. The earnings decline of 0.8% reflected a 0.9% drop
in average weekly hours and a 0.2% increase in the CPI for urban wage earners
and clerical workers. That was partly offset by a 0.3% increase in average hourly
Consumer spending accounts for two-thirds of the national economy. Before the
expansion officially ended, they were already indebted up to their ears.
Now businesses with bigger debt are in harm’s way. Consider the airline industry.
American Airlines is laying off thousands of employees. Continental Airlines
is cutting flights.
United Airlines may declare bankruptcy. US Airways already has filed for bankruptcy
People and the businesses that employ them aren’t flying as they have been.
Travel agents are an endangered class of workers.
Meanwhile, state and local governments are slashing their spending. Those least
responsible for these grim fiscal situations, low- and middle-income people, are
Now is the worst time to decrease federal spending for the American public.
Spending and tax cuts are a cure worse than the disease of budgetary deficits
when the economy flounders.
What to do? Raise federal taxes on rich people and shift military spending
to civilian spending.
Seth Sandronsky is an editor with Because People Matter, Sacramento's progressive
newspaper. Email: email@example.com