The big bet

January 08, 2003

YOU'VE GOT to hand it to President Bush.

A string of federal budget surpluses have quickly turned into escalating deficits that would grow even greater with a war on Iraq. In little more than a decade, the nation will face a fiscal crisis from Social Security obligations that begin to surpass revenue. This year, the struggling economy might need a boost -- though there's an argument over whether a recovery already is under way.

And so the president comes up with a bold economic plan -- one that doesn't provide very much short-term stimulus, drastically increases the budget deficit over the next 10 years, worsens the Social Security time bomb and, not least, gives a vastly disproportionate share of tax relief to the most well-off by eliminating taxes on dividends and speeding up tax cuts planned between now and 2009.

To be sure, some of the less costly elements of the plan announced by Mr. Bush yesterday will put money quickly in the pockets of low- and middle-income workers -- cash they'd likely put back into the economy. These include increasing the child tax credit, providing the unemployed with $3,000 for job-search expenses and immediately expanding the 10 percent tax bracket.

But if the economy needs a jump-start now, Democrats' counterproposals -- including a $300-per-worker tax rebate, greater extension of unemployment benefits, and more than $30 billion in new aid to state governments -- are much more precisely targeted on that, at far less cost to the U.S. Treasury.

Not surprisingly, Mr. Bush's plan primarily advances Republicans' updated version of former President Reagan's trickle-down economics -- so flagrantly that Kevin Phillips, a leading analyst of the politics of wealth, dubbed it "mist-down economics." Of course, the theory is that cutting taxes will spur investment, job growth and a bigger economic pie -- so big that the lost revenue ultimately is eclipsed by rising government tax receipts.

The president's economists argue that this will work. But if it mainly just runs up deficits -- and there are plenty of well-schooled economists who predict that -- one wonders on whom they're counting to pull the nation out of that financial hole. Even if Republicans were just as eager to pursue spending restraints -- and neither they nor Democrats show signs of that -- the administration's relentless pursuit of its tax-cut agenda at best boils down to very risky business.

Do Americans want to take this high-stakes gamble? Mr. Bush's advisers obviously believe so. After all, growing numbers of consumers have been spending like crazy by loading up on debt themselves -- as if they somehow can avoid a day of financial reckoning. Everyone knows they can't. Now, if Mr. Bush has his way, we may find out whether it's possible for the nation to pull off that bit of fiscal magic.

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