If wealth bubble bursts, tax cuts would be repealed

August 04, 1999|By Kevin Phillips

THE UNITED States is approaching the millennium with a lotus-eating culture and electronic commerce that some insist have banished the bad old business downturn.

But what if we are actually living in America's first major example of an aging economic cycle on the financial steroids of a "wealth effect?"

Then today's tax-cut drum beaters would be wrong about a new plateau of prosperity. The next business cycle and politics could easily bring the reverse of today's giddiness: an "unwealth effect" in which consumer spending contracts as paper affluence shrinks.

Political wealth

Politics, in turn, has become a twin of this new economic culture. Money is king more than at any time in memory. Texas Gov. George W. Bush has been all but anointed as the Republican presidential nominee for 2000 because he has a record bank account.

The No. 2 Democratic contender, former Sen. Bill Bradley, known as "Dollar Bill" in his high-earning sports days, also has drawn a good share of financial-sector contributions.

Meanwhile, House Republicans recently passed a 10-year, $800 billion tax cut, in which its worship of Baal has become public. Treasury Department calculations reveal that the wealthiest 1 percent of Americans -- 1 million families -- would receive 33 percent of the dollar benefits. The poorest 60 percent of the population would get only roughly 7 percent of the benefits.

It would be better by far to combine the proposals of President Clinton and the Republican Senate. The former would use most of the apparent budget surplus -- 10-year projections are more astrology than science -- to support and protect Social Security and Medicare.

The Senate GOP focuses its tax cuts on trimming the 15 percent income-tax rate now paid by a majority of Americans down to 14 percent, and reducing the marriage penalty. With the economic future so unclear, caution is reason.

History's lessons

History repeatedly confirms the overlap between the go-go eras of speculative capitalism, trickle-down theology and the corruption of politics by money. The past 15 years clearly resemble the Roaring '20s and the late-19th-century Robber Baron era. Yet the same history cautions against expecting reform before the financial bubble pops.

If we have entered a "Palm Beach Triangle" of sharpening concern with the fortunes and tax breaks, growing attention to money as a political corrupter and caution about a business cycle strung out on an unprecedented wealth effect, the descent could be rocky.

Kevin Phillips, a political historian and commentator, is author of "The Politics of Rich and Poor." He wrote this for the Los Angeles Times.

Pub Date: 8/04/99

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