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May 01, 2003

Does Bush Understand the Word "Stimulus"?

The point of a "stimulus" plan is to get money into the economy immediately, so that people buy stuff and invest in US companies and get people employed who make that stuff produced.

Here's the problem with Bush's tax cut proposals. They are designed not to do that.

It's not just that they go overwhelmingly to the wealthy, although the fact that the wealthy are less likely to buy stuff and far more likely to send their money to overseas investments makes them poor targets for immediate infusions into the economy.

But where Bush's policies are idiotic is that they are "back-loaded", meaning that most of their "stimulus" effect (whatever it may be) only kicks in in future years. When the House and Senate reduced the amount of planned tax cuts to $550 billion and $330 billion respectively, the White House redesigned their plan to further delay the impact of their tax cuts.

  • Instead of the tax cuts being retroactive to Jan. 1, none would kick in until after Bush signed them into law.
  • The dividend tax plan wouldn't kick in fully for five years.
  • Instead of increasing the child tax credit to $1000 immediately (the best part of Bush's plan), it would take years to reach that level.

    So the tax cut would be smallest this year and far larger five years from now. Unless Bush foresees his policies being so disasterous as to prolong the recession for that long, he has needed policy completely backward.

    So why this idiocy? Because it's not idiotic, just a lie. Bush doesn't care about simulating the economy-- remember he wanted the same tax cuts when the economy was doing well in the 2000 election-- he just wants maximum money over the long term for his rich friends. Given the Congressional limits on the tax cut over the coming years, Bush's goal is to actually minimize the immediate tax cuts -- the actual stimulus part of the plan -- in favor of phasing in the largest tax cut rates possible, whose long-term explosions of the deficit will happen largely outside the ten-year window used to measure the size of the tax cut under the Congressional budget restrictions.

    But here's the real insanity of national policy. Even as everyone is demanding a "stimulus"-- classic anti-recession economic prescriptions-- we are seeing the exact opposite at the state level, as state and local governments are enacting Herbert Hoover-like policies under the strictures of local balanced budget requirements. States are facing a collective deficit of $100 billion in the coming year alone-- if they slash spending by that amount, that will remove $100 billion in wages and purchases by those governments from the US economy. This one-year subtraction of economic activity -- multiply by ten to a potential $1 trillion lost over ten years if the economy does not pick up -- is the anti-stimulus haunting our country like ol' Hoover's ghost.

    And states aren't cutting from some kind of high free-spending level. As Bob Kuttner noted yesterday:

    state spending adjusted for inflation and population was basically flat. The slight net state spending increase over a decade -- from 8.0 percent to 8.4 percent of personal income -- was more than accounted for by net cuts in federal aid and state increases in Medicaid costs.
    And Bush is deliberately making things worse for the states and cities around the country. He's cutting domestic funding that goes to the states while increasing unfunded mandates on them, such as No Child Left Behind Act, which, as Kuttner notes, "imposes new standards on the states and mandates higher test scores as a condition of federal education aid but actually cuts by several billion dollars the funds needed to upgrade teaching."

    For even more indepth coverage of the states' budget crises, go to the Center on Budget and Policy Priorities report on the subject.. As they emphasize with Kuttner, state spending has stayed pretty constant relative to the economy:

    So Bush's starving of the states is a deliberate policy. He's looking to massively cut taxes on the wealthy in the long term, while forcing states to slash spending on education, health care and aid to the poor. And he's making sure that states won't see increased revenue anytime soon by not providing any real stimulus to ease the recession.

    But why should he? Economic pain, unemployment and bankrupt states serve rightwing policies to slash help for those in need. The longer the pain, the more cuts in spending. So there is method to Bush's lack of a real stimulus plan.

    Posted by Nathan at May 1, 2003 02:58 PM

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    Wow, that's pretty cynical... though I can't say that I disagree with your assessment. I just wish it wasn't true.

    Posted by: Kris Lofgren at May 1, 2003 03:17 PM

    And the sick thing is- if he just had Norquist's goal of "shrinking government until it was small enough to drown in a bathtub" he could just as easily make his radical tax cuts on the middle and lower classes.

    So it must be of real high importance to also shovel money into his friend's pockets. This is important because if he was just following Norquist's perscription then I could at least see it as incredibly misguided policy. But this is pure evil.

    Posted by: doesn't matter at May 2, 2003 04:59 PM

    When bush started the war on iraq i thought he was a big bully or just someting to do about failing to get Osama. but now i know better. this may be a Nigeria's view but i think he is trying to make a world where peace abound.America is God's own contry and Bush is god sent.Happy stay when you visit Africa and thanks for been nice to the 3rd world contries.

    Posted by: Ernest Iwelu at July 8, 2003 05:43 AM

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