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Monetary Musings

Ken Nesmith

Opposition to President Bush’s proposed tax cuts has been strong. Adding a hint of legitimacy to the usual cacophony of criticism, a bevy of nobel laureate economists and their peers in academia signed a statement attacking the tax cuts. They’re much smarter than I am, and probably smarter than you too. That said, it may still be worthwhile to look at what precisely they said and see what sense we can make of it.

In paragraph one of this four-paragraph work, the writers observe that while the economy has been growing, it has not grown fast enough to keep unemployment levels from rising. They decry the two million jobs, positions that would employ a bit under 1 percent of the population (including kids and seniors), that have been lost in the current recession, and fault overcapacity, corporate scandals, and uncertainty for their ongoing retardation of economic growth. Their basic complaint, then, is that the economy isn’t in explosively good shape, and point to the overinvestment of the ’90s, a round of corporate accounting scandals, and unspecified “uncertainty” as aggravating elements in this mildly rough situation.

So how does this relate to Bush’s tax-cutting plan? Why is it such a terrible thing? Paragraph two, we look to you. The writers tell us that the tax cut is not the answer to these problems; the problems cited, recall, are slow economic growth, fewer private sector jobs, overcapacity, corporate scandals, and uncertainty. It’s not clear how the government can address any of these problems. Slow economic growth? Governments don’t grow economies. Private sector jobs? Harvesting taxes from the private sector and then giving some of it back after skimming a good bit off the top can’t be honestly considered a legitimate or efficacious way to generate private sector jobs. Overcapacity? The market has punished those who have overinvested in capacity, usually by bankrupting them. They don’t need another clumsy lesson from the government. Corporate scandals? While these have nothing to do with the tax structure, Bush has failed to implement sharper corporate ethics enforcement. But once again, it’s worth noting that any company touched in the headlines with even a hint of scandal will be reduced to a stock-ticker memory within days or weeks.

But I’ve interrupted the laureates. (For those who prefer a commentary-free version, see <http://www.epinet.org>.) What again is the problem with the tax cuts? The primary complaint is that “its purpose is a permanent change in the tax structure and not the creation of jobs and growth in the near-term.” The dividend cut deserves special criticism, say the laureates, because it is not a short-term stimulus, it is complex, and it is not part of a “revenue-neutral” tax reform effort. Again, let’s consider each claim in turn: cutting the tax on dividends is expected to provide an immediate 10 to 20 percent boost to the stock market, positively affecting nearly all of America in the shortest of terms. On point two, there is nothing complex about ending taxes on dividends. Finally, complaining that the cut isn’t revenue-neutral is just complaining that the government will be receiving less money from its citizens -- not the most substantive complaint.

The writers have now laid clear their belief that the government’s mission should be to create jobs and growth. We still haven’t heard a good plan for doing this. What is needed to answer that question is a plan that involves taking money from people who have chosen to buy a product, live in a home, work at a job, invest in the stock market, drink, smoke, or die -- all of these involve a contribution to the government -- and then redistributing it, and by that redistribution, create more than they’ve taken in the first place. It really isn’t an easy question to answer; these economists don’t try.

The third paragraph expresses concern that deficits will increase, and it will be harder for the government to finance Social Security, Medicare, schools, and so forth. They state that the tax cuts will make the nation’s income distribution more unequal. To wrap things up, the fourth paragraph issues a vague prescription for immediate spending measures as well as immediate incentives for investment, both of which should be temporary. In total, the economist’s piece seems designed more to generate headlines and sway public opinion than it does to honestly analyze the economics of the tax cut.

Meanwhile, shall we look at what has been the government been doing with tax money lately? The foremost priorities have been military expansion, destroying Saddam, and increasing homeland security. Most who oppose the tax cut also oppose these military spending habits. Reducing the government’s revenues appears to be an underused approach towards curtailing military spending.

But we’re not just buying guns and waiting for French and German permission to use them against monstrous dictators. We’re also buying all sorts of other things. The latest omnibus spending bill contains an estimated $20 billion in pork for this year alone; watchdog groups are calling it the porkiest porkfest in the history of the other white meat. Representative Jeff Flake objected to the measure’s $90K for the Cowgirl Hall of Fame, $350K for the Rock and Roll Hall of Fame, and $750K for the Baseball Hall of Fame before quipping, “I’d nominate Congress for the Pork Barrel Hall of Fame, but I’m afraid legislators would actually try to appropriate money for it.” Representative David Obey, senior Democrat on the Appropriations Committee, called it the “biggest back-room deal” in the history of Congressional spending.

Keep in mind that this is what Congress is doing with money taken from citizens in times of fiscal hardship. It doesn’t seem to be a responsible or honest approach.

Ultimately, if we don’t like the consequences of the tax cut, we’ll elect a different president. In our American democracy, the masses, the purported victims of Bush’s plans, hold complete power over his political career. In under two years, he will answer to us, not a panel of ten nobel laureates. With a Republican congress, the tax cuts may happen. If representatives can restrain themselves and slow down on the tank-buying and hall of fame building, things might work out well for our economy.