It's easy to understand why the administration is plowing ahead with one immense tax cut after another. The Bush people oppose social outlays, and the best strategy for cutting public services is to starve government.
It's a neat game: Cut taxes on the Republican watch (Reagan, Bush I), force intervening Democratic presidents to opt for fiscal prudence over social investment -- someone has to -- and then, when the budget is back in balance at a lower level of social outlay, do it again (Bush II).
This maneuver forces Democrats to take responsibility for periodically raising taxes to undo the economic damage. Putting budget balance ahead of social outlay also undercuts the traditional Democratic winning formula of delivering services that ordinary Americans actually value.
No serious independent economist believes that the Bush tax cut is sensible growth policy. If the administration were serious about restoring growth and preferred tax cutting as the mechanism, far more of the tax cut would take place this year, and more of it would go to working families, who would go out and spend the money. But such is the cynicism of the administration that the one portion of the tax cut that actually does benefit working families -- the child tax credit -- was deleted for most lower-income families from the final bill.
The administration plays another game that also invites scrutiny. It begins with a number so outlandish that when the proposed tax cut is reduced, it looks like a victory for prudence. In this case, the president began with a proposed 10-year cut of $732 billion. A few moderate Republican senators insisted that it be no more than $350 billion, then proclaimed victory.
The more radical House Republicans threw a tantrum, and by the time the bill came back from House-Senate conference, the true 10-year cost was closer to $1 trillion -- more than Bush proposed. The drafters just "sunsetted" the tax cuts in 2007, so the four-year total stayed under $350 billion. Soon, the Republicans will throw a small bone to the forces of decency and extend the child tax credit to the low-income families who were excluded. This will again be portrayed as a major victory for moderation when in fact it is a small fraction of the whole bill.
These trims are not victories. The whole approach is insane.
Bush keeps getting away with these policies despite public opinion to the contrary. Everyone seemingly loves tax cuts, but polls keep showing that a majority of voters, given a choice between more reliable health care or Social Security or education and additional tax cuts, reject the tax cuts.
It is bad enough that the administration uses phony numbers and spurious logic to ram through policies that people don't want. More serious is the fact that Bush is playing roulette with the economy.
Right now, one thing is keeping a weak economy out of deep recession -- very low interest rates. They lower the cost of everything from home mortgages to business borrowing to consumer credit. A wave of refinancings has put hundreds of billions of dollars into the pockets of consumers.
Now imagine what will happen if mortgage interest rates go back up to 7 or 8 percent. For the moment, despite rising deficits, the Federal Reserve is able to keep interest rates low because in a weak economy the forces of inflation are so mild. But in the past, inflation has caught the economy by surprise due to unanticipated events such as a spike in the price of oil, bad harvests or spiraling health care costs.
And if structural deficits keep increasing due to irresponsible tax cuts, sooner or later money markets will build inflation into their calculations and push up long-term interest rates. Don't take my word for it. Consider the views of such experts as John Snow, Stephen Friedman and Gregory Mankiw.
They are, respectively, President Bush's Treasury Secretary, head of his National Economic Council, and chairman of the President's Council of Economic Advisers. All are on record that rising long-term deficits lead to rising interest rates. You wonder why they work for George Bush, who ignores their advice. Bush's previous Treasury Secretary, Paul O'Neill, recently disclosed to the Financial Times of London an internal study calculating the long-term bill for the administration's tax policies: a cumulative deficit of $44 trillion. The study was suppressed, and O'Neill left the administration.
One has come to expect the deep cynicism of George W. Bush. It is the recklessness that's more alarming.
Robert Kuttner is co-editor of the Prospect.
This column originally appeared in yesterday's Boston Globe.
