AmerCon : Economics : Income & Wealth Inequality / Deficit Dance

Economics / Income & Wealth Inequality / Deficit Dance

With sad consistency, America often completely misses the point.

After four years of serial tax cuts for corporations and the wealthy, this year's income tax cuts
alone will amount to an unfunded $47 billion gift to the richest 1% of earners, people whose
incomes average about $1 million a year (read here). Now the nation finds itself arguing
about how "stingy" it might appear to be in response to a disastrous tsunami -- and thus
makes a disreputable public display of increasing its giving to an amount that might
eventually total $1 billion.

What is sadly awry in this situation is that America doesn't have $1 billion for the tsunami
victims, or even the $47 billion that it is giving to its own wealthy. It must borrow both sums
from Japan and China and apply those debts to its current national deficit (charted here).
The interest on the debt for these two gifts will be paid by the next generation of Americans,
and the base debt will remain until the nation has the intellectual honesty to overturn this
generational theft.

Are America's corporatists a bunch of self-indulgent cheapskates? Because they borrow
from the nation's children to give themselves an additional $47 billion a year and make a
huge display about a one-time gift of another $1 billion they won't even be paying for?

The question answers itself.

ehj2

Washington Post
2005.01.11

Deficit Dance

By Isaac Shapiro

When it comes to domestic policy, President Bush is dancing an unusual Texas two-step.
The exceptional feature of this dance is the long delay between the first and second steps.
And watch out: Lots of toes are about to be stepped on (along with lots of government
programs essential to Americans' well-being).

The first step was to enact, in a series of bills adopted from 2001 through 2004,
extremely large tax cuts. This year alone those tax cuts will total $215 billion.
High-income households will reap most of the gains, with the top 20 percent of
earners receiving 70 percent of the tax cuts. Roughly $47 billion of the cuts will
go to the top 1 percent, a group with average incomes of about $1 million.

These tax cuts were not paid for. Their costs simply were added to the national debt.
Largely as a consequence, the deficit remains quite substantial several years into a
recovery. Concern about the debt and deficit is mounting.

Now comes step two. The administration is saying that it is concerned about the budget
deficit and that the rising cost of federal programs is the culprit. Expenditures for federal
programs are blamed even though federal spending, measured as a share of the
economy, is slightly below the average of recent decades, while federal revenue as a
share of the economy has plunged to its lowest level in 45 years.

The administration says it is considering a freeze in domestic discretionary spending. If
maintained over a number of years, such a freeze would necessitate substantial reductions
in services dear to most of us -- the services delivered through federal funding for
education, child care, environmental protection, veterans' health care, housing and other
programs. The administration also may propose to alter significantly the Medicaid program
-- which provides health insurance for low-income children, parents, and elderly and
disabled people -- in a way that would ultimately result in dramatic erosion of the health
care coverage or benefits this program provides.

With its long pause between steps one and two, the administration has attempted to
obscure a key reality: In the absence of the tax cuts, the deficit would be much smaller and
the need for cuts in domestic programs much less. The administration is using the deficit
as the rationale for its forthcoming effort to cut domestic programs. It seeks to shield from
view the fact that the cost of its tax cuts far exceeds the size of the domestic spending cuts
it may propose.

Had the administration wanted to be upfront about its proposals, it would have made these
trade-offs explicit. The tax cut proposals it advanced, especially in 2003 and 2004 after the
recession had ended, would have been accompanied by the program reductions it is
expected to seek. That would have made it possible to have a direct vote on this trade-off.

Rather than following that course, the administration took the easy way out. It gladly took
step one, pushing for unpaid-for tax cuts. After all, step one is the fun part of the dance.
But it conveniently hid the less pleasant second step: paying for those tax cuts with
program reductions.

Congress has been the willing partner in this dance. It, too, has sought to obscure
the connection between the tax cuts and program reductions, a strategy it is expected to
follow this year as well.

Beware the Texas two-step. It represents deceptive budgeting. The trade-offs between tax
cuts conferring lavish benefits on the most-well-off and reductions in programs upon which
millions of Americans rely should be made clear. The public should be allowed to assess
directly whether it wants the government to shrink programs related to health care, child
care and protecting the environment so that millionaires can continue receiving tax cuts
that cost tens of billions of dollars a year.

_____

The writer is associate director of the Center on Budget and Policy Priorities.

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