Vermont Gov. Howard Dean, recently profiled in these pages, committed a brave political act the other day. He called for repeal of George W. Bush's $1.35 trillion tax cut.
What makes the act so brave is not that repealing the tax cut is an outlandish idea, or even that it is unpopular. What makes Dean's call courageous is that very few other leading Democrats have taken this stand. Dean made the proposal as a way to pay for national health insurance, but there are lots of other good rationales for the repeal.
Let's put this in some perspective. Bush's tax cut was enacted before the stock-market bust, before the recession, before September 11, when it appeared that the government faced a fiscal future of indefinite surpluses. Now there is a real risk of a double-dip recession. Deficits loom for decades. And every domestic program that Democrats favor is held by the White House to be unaffordable -- as if the tax cut had nothing to do with the huge hole in the budget.
Meanwhile, the states also face a collective deficit. This year they will be $57.9 billion in the red, according to the National Conference of State Legislatures. California's budget alone is out of balance by a cool $23.6 billion. On the whole, states are responding in the usual way: cutting public services, laying off public employees and raising (mostly regressive) taxes. In a climate of severe federal budget austerity when it comes to social spending, there is little additional federal aid to make up the gap.
Thanks to President Bush and his program of high-stakes compulsory testing, children who do not pass standardized tests will not advance to the next grade. But guess what is coming in for a disproportionate share of cuts? State aid to local school districts. This is a very neat game. Most education spending is local and state. The president embraces tougher education standards -- and then leaves states and localities holding the bag in an economic downturn.
The state shortfalls are projected to be even worse next year. New Jersey's deficit will triple to a projected $5.3 billion. In my home state of Massachusetts, where the deficit is about $1.3 billion this year and will be around $2.3 billion next year, our governor has just vetoed money for everything from kindergarten to local school aid to health care for the elderly. She called the health cuts "heart-wrenching," as if the process was not deeply political.
This is the level of government supposedly dear to conservatives. Governors, Republican and Democrat alike, should be camped out at George Bush's door.
The Bush tax cut delivers about $80 billion of tax relief this year. Of that, $15 billion goes to the top 1 percent -- and that share will increase in future years. By the time the 10-year tax reduction is fully expended, the top 1 percent will have collected just over half of the total amount.
This was dreadful policy when the cut was enacted, but it is even worse today. The top 1 percent is so rich that a tax cut for its members has little overall stimulus effect. The very wealthy don't consume most of what they take in. By contrast, if the money went to the states in the form of special revenue sharing, it would immediately translate to increased services and jobs.
As it happens, the roughly $58 billion in state shortfalls this year just about equals the portion of the tax cut that goes to the richest 40 percent. If we repealed the tax cuts that go to just the top 1 percent after 2005 and spent the money on public services -- from remedial education to health insurance -- the result would be distributively fairer and make for a more sensible anti-recession policy. And there would be a lot of grateful voters.
George W. Bush and his economy keep handing the Democrats political opportunities. This issue of the Prospect asks: Is anybody home?
