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Bushonomics: One Family's Lifelong Legacy to America's Investment Class
Published on Monday, February 17, 2003 by the Seattle Times
Bushonomics: One Family's Lifelong Legacy to America's Investment Class
by Kevin Phillips
 

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 Bush 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 percent of which annually goes to the top 1 percent 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, Texas, 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 adviser 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 vs. 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. Low-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."

McCain 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.

Copyright © 2003 The Seattle Times Company

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