If ever there were a president who needed a war, it is George W. Bush. And if ever an opposition party needed to start behaving like an opposition, it is the Democrats.
The economy is faltering; Bush's foreign policy is a mess; his domestic program is aimed more at rewarding favored interest groups than solving national problems. If properly challenged, Bush's program would be monumentally unpopular.
The centerpiece of the Bush economic program is permanent repeal of the tax on corporate dividends, falsely advertised as an economic "stimulus." The Bush plan would reduce revenues by $670 billion over 10 years, about half just from repeal of the dividend tax.
The proposal is bad economics and irresponsible budget policy. Two-thirds of the benefit would go to the wealthiest 5 percent. About half of all Americans have some money in the stock market, but most small investors have their money in IRAs, Keoghs, and 401(k) plans, which are already tax exempt. Bush is betting that small investors will misunderstand the law and identify with big investors.
The administration also claims that dividend income should be exempt from the income tax because corporations already pay taxes on their profits. "It's unfair to tax money twice," the president has declared.
But why special treatment for dividends? Workers pay income tax on wages and salaries, and then they pay sales tax at the store and property taxes on their homes and excise taxes on tickets -- all on spending from earnings that have already been taxed once.
Though Bush touts the benefits of increased investment, business investment is sluggish this year because customers aren't buying, not because dividends are taxed. Other parts of Bush's plan offer some token short-term stimulus, but the amounts are puny -- nothing for hard pressed states other than a new $3.6 billion federal retraining program that the states would administer and a short extension of unemployment benefits.
The Bush plan also accelerates some of the tax cuts enacted in 2001. But because most of those benefits go to the top, the typical family would receive little.
Two years ago, when Bush proposed his first huge tax cut (also tilted toward the very wealthy), Democrats in Congress were splintered. Many voted for the Bush plan.
This time, however, congressional Democrats are unified. On Monday, the House Democratic leadership proposed a stimulus plan that puts money where it is needed -- $31 billion so that states won't have to cut health and education outlays in a recession and to help states and cities pay for stepped up civil defense efforts. The Democrats would also give an immediate rebate of $600 per working couple.
Because the Democratic alternative does not cut taxes on dividends, the plan spends only $131 billion rather than $670 billion -- but spends most of it this year when the economic stimulus is needed. Interestingly, both the moderate and liberal wings of the party are backing this plan. The House minority leader, Nancy Pelosi of San Francisco, a liberal, worked closely with Representative John Spratt of South Carolina, a fiscal conservative, in crafting the plan. The Democrats were also quick off the mark, upstaging the president's formal unveiling of the administration plan in his Tuesday speech at the Economic Club of Chicago.
When critics of trickle-down economics challenge Bush's warped priorities, Bush's defenders invariably charge, "Class warfare!" But tax and budget policy always invites questions and entails choices. Would permanent repeal of the tax on dividends really do much for the economy this year?
And if we didn't take $300 billion out of the budget to cut taxes on dividend income, what else might we use it for? Prescription drug benefits? Decent child care? Tax breaks for working families?
This president and his program ought to be highly vulnerable. For half a century, no president has begun his term with a worse economic performance.
Soon the president will unveil his plans for Medicare and Social Security. Advance reports suggest that Bush wants to scrap traditional Medicare, cap the federal contribution to health insurance of the elderly, and invite them to sign up for the tender mercies of HMOs. For Social Security, the administration plans a partial privatization that would cut guaranteed benefits to future retirees and place more reliance on the stock market.
If the Democrats can muster the same nerve and unity that they belatedly displayed in challenging the Bush tax plan, these proposals will be revealed as monumentally unpopular, too. Even Bush's ill-conceived and suspiciously timed war on Iraq won't change that.
Robert Kuttner is co-editor of the Prospect.
