I donít want to rain on the Presidentís parade. Heís right when he says more money is flowing into the Treasury this year than last, which means the federal budget deficit will be lower. Frankly I donít blame the President for making the most of every bit of good news he can find.
But itís important to put this good news in context. This yearís federal budget deficit will still total between $280 and $300 billion. Thatís better than the $318 billion hole that was expected. But itís hardly cause for celebration.
Federal spending is still way out of control. Itís at a higher rate and a higher percent of the overall economy than a decade ago. Even if you take military spending out of the calculation, you see almost nothing but more spending. And lots of the spending is for pork (bridges to nowhere) and corporate welfare (farm subsidies, a drug benefit that mainly benefits Big Pharma).
Look at the other side of the ledger and things are almost as bleak. Yes, revenues are up slightly. But theyíre still running $100 billion less than what the White House projected five years ago when it sold its tax cuts. In fact, overall revenues have barely reached the level they were in 2000.
The basic question is whether those tax cuts have helped or hurt the economy. The White House supply-side gang says theyíve helped, and points to the slight upturn in tax revenues to argue its case.
But every economic recovery offers good news. Thatís why we call them recoveries. The business cycle is, after all, a cycle. When the cycle is turning down, the news is bad. When itís turning up, news is good.
The best way to find out whether the Bush tax cuts have really helped is to compare the current recovery with every previous recovery since World War II.. What do we find? Real revenue growth in this one is trailing the average of all previous recoveries. So is the rate of new investment. So is the rate of job creation.
You donít have to have total recall to remember that after Bill Clinton raised taxes and cut spending, we had faster revenue growth than now, a higher rate of new investment, more jobs, and a more rapidly-vanishing deficit.
But the biggest difference between then and now is the baby boomers are now much closer to retirement. This means itís even more important now to cut spending and raise taxes in preparation for the upcoming drain on Social Security and Medicare. But what is this administration doing? It continues to borrow against Social Security, spend like mad, and try for more tax cuts.
The Presidentís supply-side tax cuts have had only one conspicuously positive effect, for one conspicuous group. Theyíve helped people earning over $200K a year become fabulously richer. These people do have cause to celebrate, and itís understandable if they want to parade around in their designer clothes. The rest of us, though, are still caught in a downpour.
Robert Reich is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written ten books, including The Work of Nations, which has been translated into 22 languages; the best-sellers The Future of Success and Locked in the Cabinet, and his most recent book, Reason. His articles have appeared in the New Yorker, Atlantic Monthly, New York Times, Washington Post, and Wall Street Journal. Mr. Reich is co-founding editor of The American Prospect magazine.