[Elissetecausa]

May 27, 2003

Stating the Obvious

By PAUL KRUGMAN

"The lunatics are now in charge of the asylum." So wrote the normally staid Financial Times, traditionally the voice of solid British business opinion, when surveying last week's tax bill. Indeed, the legislation is doubly absurd: the gimmicks used to make an $800-billion-plus tax cut carry an official price tag of only $320 billion are a joke, yet the cost without the gimmicks is so large that the nation can't possibly afford it while keeping its other promises.

But then maybe that's the point. The Financial Times suggests that "more extreme Republicans" actually want a fiscal train wreck: "Proposing to slash federal spending, particularly on social programs, is a tricky electoral proposition, but a fiscal crisis offers the tantalizing prospect of forcing such cuts through the back door."

Good for The Financial Times. It seems that stating the obvious has now, finally, become respectable.

It's no secret that right-wing ideologues want to abolish programs Americans take for granted. But not long ago, to suggest that the Bush administration's policies might actually be driven by those ideologues — that the administration was deliberately setting the country up for a fiscal crisis in which popular social programs could be sharply cut — was to be accused of spouting conspiracy theories.

Yet by pushing through another huge tax cut in the face of record deficits, the administration clearly demonstrates either that it is completely feckless, or that it actually wants a fiscal crisis. (Or maybe both.)

Here's one way to look at the situation: Although you wouldn't know it from the rhetoric, federal taxes are already historically low as a share of G.D.P. Once the new round of cuts takes effect, federal taxes will be lower than their average during the Eisenhower administration. How, then, can the government pay for Medicare and Medicaid — which didn't exist in the 1950's — and Social Security, which will become far more expensive as the population ages? (Defense spending has fallen compared with the economy, but not that much, and it's on the rise again.)

The answer is that it can't. The government can borrow to make up the difference as long as investors remain in denial, unable to believe that the world's only superpower is turning into a banana republic. But at some point bond markets will balk — they won't lend money to a government, even that of the United States, if that government's debt is growing faster than its revenues and there is no plausible story about how the budget will eventually come under control.

At that point, either taxes will go up again, or programs that have become fundamental to the American way of life will be gutted. We can be sure that the right will do whatever it takes to preserve the Bush tax cuts — right now the administration is even skimping on homeland security to save a few dollars here and there. But balancing the books without tax increases will require deep cuts where the money is: that is, in Medicaid, Medicare and Social Security.

The pain of these benefit cuts will fall on the middle class and the poor, while the tax cuts overwhelmingly favor the rich. For example, the tax cut passed last week will raise the after-tax income of most people by less than 1 percent — not nearly enough to compensate them for the loss of benefits. But people with incomes over $1 million per year will, on average, see their after-tax income rise 4.4 percent.

The Financial Times suggests this is deliberate (and I agree): "For them," it says of those extreme Republicans, "undermining the multilateral international order is not enough; long-held views on income distribution also require radical revision."

How can this be happening? Most people, even most liberals, are complacent. They don't realize how dire the fiscal outlook really is, and they don't read what the ideologues write. They imagine that the Bush administration, like the Reagan administration, will modify our system only at the edges, that it won't destroy the social safety net built up over the past 70 years.

But the people now running America aren't conservatives: they're radicals who want to do away with the social and economic system we have, and the fiscal crisis they are concocting may give them the excuse they need. The Financial Times, it seems, now understands what's going on, but when will the public wake up? *


Copyright 2003 The New York Times Company

[LookSe]

May 28, 2003

An Erosion of the Social Contract (3 Letters)

To the Editor:

Re "Stating the Obvious," by Paul Krugman (column, May 27):

I count myself among the liberals who have been aware for months that the seemingly foolish fiscal policies of this administration are not foolish at all but a deliberate effort by the reactionary right to dismantle our social institutions.

These rights — universal health care, a decent education for all our children, assurance that no one will go to sleep hungry every night or spend his last years living in a cardboard box — are inherent in the social contract to which every democracy is committed.

Mr. Krugman asks, "When will the public wake up?" People will be aroused to anger at the train wreck ahead only when the Democrats in Congress start showing some guts and begin exposing this administration's plan. They should be putting their indignation in print, articulating it on talk shows and protesting it in every forum.

We elected our leaders to represent the interests of ordinary people, not to look the other way as government officials race our democracy down the road to ruination.


LOLA FERRIS
Old Bethpage, N.Y., May 27, 2003
•
To the Editor:

The hysterical hand-wringing by the left over the modest tax cut just passed by Congress would have some credibility if there were a reaction in the bond market, which is unforgiving when it comes to policy blunders (column, May 27).

A year ago, some asserted that rising deficits would send interest rates higher; yet interest rates continue to fall, showing that investors are not as concerned about deficits.

Reasonable people can disagree about the composition of this tax cut, but the need for stimulus is beyond question when an economy slides.

To worry now about reducing deficits is comparable to putting leeches on ailing patients 300 years ago: it will make the patient sicker. Thankfully, the bond market understands this.


GREGORY R. VALLIERE
Washington, May 27, 2003
•

To the Editor:

Paul Krugman asks, "When will the public wake up?" to the Bush administration's deliberate erosion of our economic-social base (column, May 27). Many people are apparently overwhelmed by the mythology this administration has worked so hard to sell: that President Bush has avenged the terrorist acts of Sept. 11. Are they therefore predisposed to acquiesce to his fiscal policy even if they don't understand how it's possible to achieve financial health at the same time as digging a deep financial hole?

Perhaps many people identify with the top earners who benefit from the tax cuts, denying to themselves that if they do not join that group, their economic position will deteriorate.

Democrats have been slow to challenge the administration's policies. Do they fear that the messenger will be blamed for daring to criticize the emperor's voodoo economics?


Copyright 2003 The New York Times Company

[PWRichard]

And I thought this was just an attempt to buy votes. If true, very alarming.

[GlictStiply]

One of your writers seems to have some confusion over what constitutes a "right", when what he really seems to be saying is an "entitlement". The difference between the two is as wide as the Atlantic.

[DagoIgnog]

The gap is closed or significantly narrowed when considering the conception of a majority of Americans, who will inevitably have a rough awakening.

They aren't my or our writers.

[ElisasAUG]

Whether you call them rights or entitlements, when the federal government eliminates them, municipalities have to deal with the consequences, because these people get under foot and can't be ignored. Then all of us who think we are insulated from the problem wind up paying for it.

This especially impacts cities like NY, with a negative revenue flow from the feds.

[Soulofpostar]

Conservatives imagine social security is purely altruistic. Let's see what happens after their decision not to pay for social peace, if they can really afford it. The political cost may be much greater than they expect in this time of intoxicating arrogance for the far right.

[Stappipsy]

May 29, 2003

Caught in the Squeeze

By BOB HERBERT

One of the things President Bush knows best is when to turn on the klieg lights, and when to keep them off.

On Tuesday, with no fanfare, he signed a bill increasing the federal debt limit by nearly a trillion dollars. You don't want a lot of coverage when you're mortgaging the future.

But yesterday it was high-fives all around as Mr. Bush signed the third-largest tax cut in history at a grand ceremony in the East Room of the White House.

I suppose if your income is large enough, there is every reason to celebrate. After all, the tax cut could save Dick Cheney $100,000 a year, or more.

But given the economic realities in the U.S. right now, I thought the East Room celebration was in poor taste. The enormous tax-cut package (which is coupled with budget deficits that are lunging toward infinity) is a stunning example of Mr. Bush's indifference to the deepening plight of working people.

The economy has lost more than a half-million jobs already this year, and well over 2 million since payrolls peaked two years ago. More than 8.7 million American men and women are officially counted as unemployed. And that figure is artificially low because it does not count those who have become discouraged and stopped looking for work.

The fallout from the continued hemorrhaging of jobs and the swollen ranks of the unemployed is spreading. The Times had an article two weeks ago about college seniors' putting their dreams on hold because they're graduating into the worst hiring slump in 20 years.

"We definitely picked the wrong time to be graduating from college," said Morgan Bushey, a 21-year-old student at the University of North Carolina. She said she planned to go to France, where she would make about $200 a week teaching English.

The jobs squeeze has other effects. "There's been this notion along the way that if you at least kept your job, you'd be O.K.," said Jared Bernstein, an economist with the Economic Policy Institute in Washington. "But now this persistent unemployment is taking a toll on the wages of those who are still working."

Wages, when adjusted for inflation, are falling for workers across the board. An analysis of government data by Mr. Bernstein and Lawrence Mishel, the institute's president, found that the median weekly paycheck fell 1.4 percent over the past year. All the pay grades above and below the median are also sliding backward. White-collar, blue-collar — workers in all pay grades are taking a hit. Even wage earners in the highest category have seen their pay slip by 1.4 percent.

"When unemployment got down to 4 percent in the late-1990's, you had broad-based wage growth — and it was the first time we'd seen that in decades," said Mr. Bernstein. "That's gone."

The president is not calling his tax package the "Windfall for the Wealthy" act, which is what it is. He calls it the "Jobs and Growth" act, which is what it's not.

He would like us to believe that "with tax relief will come more jobs for the American people." But that's what he said in the last round of tax cuts, and the American people are still waiting.

In fact, the wait is becoming interminable for some. More and more Americans are joining the ranks of the long-term unemployed, those who are out of work for six months or more. A joint study by the National Employment Law Project and the Economic Policy Institute called long-term unemployment "the scourge of a declining economy," and noted that it is taking its greatest toll among those who have traditionally felt economically secure.

"The reality," said the study, "is that the long-term unemployed are better educated, older and more likely to be professional workers."

What the economy needs is a real stimulus that will create real jobs, not an irresponsible package of tax cuts that will inflate the portfolios of the very wealthy while starving the government of the money needed to pay for essential services and to maintain a safety net for the nation's most vulnerable citizens.

We are closing schools and libraries in America, and withholding lifesaving drugs and medical treatment from the poor. The middle class is struggling ever harder to make ends meet, and reshaping its dreams of the future.

In Washington, they're celebrating. *


Copyright 2003 The New York Times Company

[251EPyso]

Echoing the exporting of manufacturing jobs over the past decades, US corporations are now doing the same with service
sector jobs.

http://www.charleston.net/stories/05...utsource.shtml

[ScosyGissiok]

May 30, 2003

The Tax Bill's Final Indignity

The tax bill that President Bush triumphantly signed into law on Wednesday is not just unfair, dishonest and economically unsound. It is also cruel to low-income families. In a last-minute revision, Senate and House negotiators dropped a provision that would have extended child tax credits to millions of these families. The stated reason was that the total cost of the bill had to be kept to an agreed-upon limit of $350 billion. This excuse is typical of the shifty argumentation that has accompanied this legislation from the start.

Under the new law, which raises the child tax credit to $1,000 from $600, most families with children will receive a $400-per-child check this summer. It was never intended that the wealthiest families — or the very poorest families, making less than the minimum wage — would get the credit. As it turns out, however, millions of families with incomes between $10,500 and $26,625 will not get it either. Blanche Lincoln, an Arkansas Democrat, had insisted that the Senate version of the bill extend the enlarged credit to this particular group of working families, who have nearly 12 million children. The provision would have cost $3.5 billion, or exactly 1 percent of the advertised price of the bill. But because it would have helped push the tab above $350 billion, out it went.

Set aside for the moment the fact that the official $350 billion figure is a phony. The real cost of the bill over 10 years will more nearly approximate $800 billion if all the provisions that are scheduled to "sunset" in the next few years are eventually made a permanent part of the tax code, as they almost certainly will be. But even if the cost of the bill were actually $350 billion, there were fairer ways to reach that target than by depriving low-income families of the tiny crumbs the bill gives them.

For example, according to the Center on Budget and Policy Priorities, the same result could have been achieved with a modest 2.3 percent adjustment in the bill's generous cuts on capital gains and dividends. It could also have been achieved by a tiny adjustment in the new top income tax rate, setting it at 35.3 percent over the next three years rather than 35 percent.

Senator Lincoln understandably feels betrayed. She also notes that the families who will no longer benefit badly need the money and would have spent it quickly, thus providing Mr. Bush with the stimulus he says he wants and which the rest of the bill may not reliably provide.

Some senators and interest groups are now urging President Bush to rectify this injustice, a change that would presumably require separate legislation. Given all the other problems with this bill, it seems the least he can do.


Copyright 2003 The New York Times Company

[neirty]

June 2, 2003

The Reverse Robin Hood

By BOB HERBERT

If you wanted a quintessential example of what the Bush administration and its legislative cronies are about, it was right there on the front page of The Times last Thursday:

"Tax Law Omits $400 Child Credit for Millions."

The fat cats will get their tax cuts. But in the new American plutocracy, there won't even be crumbs left over for the working folks at the bottom of the pyramid to scramble after.

When House and Senate negotiators met to put the finishing touches to President Bush's tax bill, they coldly deleted a provision that would have allowed millions of low-income working families to benefit from the bill's increased child tax credit.

It was a mean-spirited and wholly unnecessary act, a clear display of the current regime's outright hostility toward America's poor and working classes.

The negotiators eliminated a provision in the Senate version of the tax bill that would have extended benefits from the child tax credit to families with incomes between $10,500 and $26,625. This is not a small group. According to the Center on Budget and Policy Priorities, the families that would have benefited include about 12 million children — one of every six kids in the U.S. under the age of 17.

While the tax bill will lavish hundreds of billions of dollars in benefits on people higher up the income scale, it leaves this group of working families very ignominiously behind.

And readers of yesterday's Times learned that another group of some eight million mostly low-income taxpayers — primarily single people without children — will also be left behind, getting no benefit at all from the president's tax cuts. Forget about trickle-down. The goal of this administration is to haul it up.

The provision to extend the tax credit to more low-income families was the work of Senator Blanche Lincoln, an Arkansas Democrat who noted that half of all taxpayers in her state had adjusted gross incomes of less than $20,000. The full Senate approved the provision, but the negotiators knocked it out at the last minute, behind closed doors.

While the most well-heeled Americans are happily inflating their bankrolls, there are families with a total of 16 million children at the low end of the income scale who, for one reason or another, won't get the help they should — their fair share — from this tax bill. About half of all African-American and Latino children get no benefit — or only a partial benefit — from the child tax credit, according to the Children's Defense Fund and an advocacy group called the Children's Research and Education Institute.

When the whistles were blown on the child-tax-credit outrage, Republican leaders were unable to give a coherent explanation for their action. Some tried to argue that they had to scrap the provision to keep the total cost of the tax bill from exceeding $350 billion over 10 years, their agreed-upon limit.

That was not true. For one thing, the $350 billion limit was a completely arbitrary and largely fictional figure. The true cost of the tax bill over 10 years will be closer to a trillion dollars than the deliberately deceptive $350 billion figure that the G.O.P. has chosen to use.

Senator Lincoln's provision, which would have offered a little help to so many people who need it, would have cost only $3.5 billion. Even within the phony $350 billion limit, a slight adjustment in a number of different windfalls for the very wealthy would have opened up sufficient room for this modest tax break.

But to really get a sense of the scandalous nature of this G.O.P. tax-cut scam, consider that the House and Senate negotiators also got rid of a number of measures in the Senate bill that would have saved billions of dollars by closing abusive corporate tax structures. The Center on Budget noted the following:

"As the Washington Post has reported, the Senate bill `included provisions to crack down on abusive corporate tax shelters, combat some accounting scams such as those pursued by Enron Corp., prevent U.S. companies from moving their headquarters to post office boxes in offshore tax havens such as Bermuda and limit grossly inflated deferred compensation plans for corporate executives.' "

The savings from those provisions would have been about $25 billion, much more than enough to cover the cost of Senator Lincoln's $3.5 billion attempt to give a bit of a break to several million working families. *


Copyright 2003 The New York Times Company

[drugimpotence]

June 5, 2003

The Poor Held Hostage for Tax Cuts

Millions of low-income families were cruelly denied child credits in the administration's latest detaxation victory. Now, with consummate arrogance, Republican leaders in Congress are threatening another irresponsible tax-cut bidding war as the price for repairing the damage. "There are a lot of other things that are more important than that," said Tom DeLay, the House Republican majority leader, signaling that revisiting the child-care issue will open the door to even worse deficit-feeding tax-cut plans. Mr. DeLay at least offered unabashed candor instead of the crocodile tears of other Republicans. They are now embarrassed over the furor that low-income families were deleted in the final G.O.P. deal on the tax-cut boon weighted so shamelessly last month to favor the wealthiest Americans.

There is a clear and sensible solution to restore the $400 child-credit increase to the working poor in a Senate proposal from Blanche Lincoln, Democrat of Arkansas, and Olympia Snowe, Republican of Maine. Their measure, which would cost $3.5 billion and help nearly 12 million children, would be paid for by eliminating some of the tax-shelter abuses that fed the Enron scandal.

Republicans are scrambling for political cover now, fearing the wrath of the mythic soccer-mom voting bloc next year. But the rival child-care solution being offered by Senator Charles Grassley, Republican of Iowa and the finance chairman, introduces a whole new scale of irresponsibility to the tax-cut games. This would expand the credit to 6.5 million low-income households, although not to minimum-wage earners of less than $10,500 a year. But at the same time, the upper-bracket limit would be generously, gratuitously raised another $40,000 to benefit families earning up to $189,000, hardly the neediest among us. Plus the credits would be made permanent instead of temporary, as currently enacted.

This makes it a $100-billion-plus budget-busting measure lacking the cost offsets of the sane and prudent Lincoln-Snowe approach. The fiction of Republican leaders' promises to contain the deficit damage of their tax cuts is becoming clearer with each wad of debt rolled onto future generations.



Copyright 2003 The New York Times Company

[chuecaloversvv]

June 6, 2003

Duped and Betrayed

By PAUL KRUGMAN

According to The New Republic, Senator Zell Miller — one of a dwindling band of Democrats who still think they can make deals with the Bush administration and its allies — got shafted in the recent tax bill. He supported the bill in part because it contained his personal contribution: a measure requiring chief executives to take personal responsibility for corporate tax declarations. But when the bill emerged from conference, his measure had been stripped out.

Will "moderates" — the people formerly known as "conservatives" — ever learn? Today's "conservatives" — the people formerly known as the "radical right" — don't think of a deal as a deal; they think of it as an opportunity to pull yet another bait and switch.

Let's look at the betrayals involved in this latest tax cut.

Most media attention has focused on the child tax credit that wasn't. As in 2001, the administration softened the profile of a tax cut mainly aimed at the wealthy by including a credit for families with children. But at the last minute, a change in wording deprived 12 million children of some or all of that tax credit. "There are a lot of things that are more important than that," declared Tom DeLay, the House majority leader. (Maybe he was thinking of the "Hummer deduction," which stayed in the bill: business owners may now deduct up to $100,000 for the cost of a vehicle, as long as it weighs at least 6,000 pounds.)

Less attention has been paid to fine print that reveals the supposed rationale for the dividend tax cut as a smoke screen. The problem, we were told, is that profits are taxed twice: once when they are earned, a second time when they are paid out as dividends. But as any tax expert will tell you, the corporate tax law is full of loopholes; many profitable corporations pay little or no taxes.

The original Bush plan ensured that dividends from such companies would not get a tax break. But those safeguards vanished from the final bill: dividends will get special treatment regardless of how much tax is paid by the company that issues them.

This little change has two big consequences. First, as Glenn Hubbard, the former chairman of the president's Council of Economic Advisers and the author of the original plan, delicately puts it, "It's hard to get a lot of progressivity at the top."

Translation: wealthy individuals who get most of their income from dividends and capital gains will often end up paying lower tax rates than ordinary Americans who work for a living.

Second, the tax cut — originally billed as a way to reduce abuses — may well usher in a golden age of tax evasion. We can be sure that lawyers and accountants are already figuring out how to disguise income that should be taxed at a 35 percent rate as dividends that are taxed at only 15 percent. Since there's no need to show that tax was ever paid on profits, tax shelters should be easy to construct.

Of course, the big betrayal was George W. Bush's decision to push this tax cut in the first place. There is no longer any doubt that the man who ran as a moderate in the 2000 election is actually a radical who wants to undo much of the Great Society and the New Deal.

Look at it this way: as the Center on Budget and Policy Priorities points out, this latest tax cut reduces federal revenue as a share of G.D.P. to its lowest level since 1959. That is, federal taxes are now back to what they were in an era when Medicare and Medicaid didn't exist, and Social Security was still a minor expense. How can we maintain these programs, which have become essential to scores of millions of Americans, at today's tax rates? We can't.

Grover Norquist, the right-wing ideologue who has become one of the most powerful men in Washington, once declared: "I don't want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub." Mr. Bush has made a pretty good start on that plan.

Which brings us back to Senator Miller, and all those politicians and pundits who still imagine that there is room for compromise, that they can find some bipartisan middle ground. Mr. Norquist was recently quoted in The Denver Post with the answer to that: "Bipartisanship is another name for date rape." *


Copyright 2003 The New York Times Company

[neerewed]

June 8, 2003

Deficits and Dysfunction

By PETER G. PETERSON

I have belonged to the Republican Party all my life. As a Republican, I have served as a cabinet member (once), a presidential commission member (three times), an all-purpose political ombudsman (many times) and a relentless crusader whom some would call a crank (throughout). Among the bedrock principles that the Republican Party has stood for since its origins in the 1850's is the principle of fiscal stewardship -- the idea that government should invest in posterity and safeguard future generations from unsustainable liabilities. It is a priority that has always attracted me to the party. At various times in our history (especially after wars), Republican leaders have honored this principle by advocating and legislating painful budgetary retrenchment, including both spending cuts and tax hikes.

Over the last quarter century, however, the Grand Old Party has abandoned these original convictions. Without ever renouncing stewardship itself -- indeed, while talking incessantly about legacies, endowments, family values and leaving ''no child behind'' -- the G.O.P. leadership has by degrees come to embrace the very different notion that deficit spending is a sort of fiscal wonder drug. Like taking aspirin, you should do it regularly just to stay healthy and do lots of it whenever you're feeling out of sorts.

With the arrival of Ronald Reagan in the White House, this idea was first introduced as part of an extraordinary ''supply-side revolution'' in fiscal policy, needed (so the thinking ran) as a one-time fix for an economy gripped by stagflation. To those who worried about more debt, they said, Relax, it won't happen -- we'll ''grow out of it.'' Over the course of the 1980's, under the influence of this revolution, what grew most was federal debt, from 26 to 42 percent of G.D.P. During the next decade, Republican leaders became less conditional in their advocacy. Since 2001, the fiscal strategizing of the party has ascended to a new level of fiscal irresponsibility. For the first time ever, a Republican leadership in complete control of our national government is advocating a huge and virtually endless policy of debt creation.

The numbers are simply breathtaking. When President George W. Bush entered office, the 10-year budget balance was officially projected to be a surplus of $5.6 trillion -- a vast boon to future generations that Republican leaders ''firmly promised'' would be committed to their benefit by, for example, prefinancing the future cost of Social Security. Those promises were quickly forgotten. A large tax cut and continued spending growth, combined with a recession, the shock of 9/11 and the bursting of the stock-market bubble, pulled that surplus down to a mere $1 trillion by the end of 2002. Unfazed by this turnaround, the Bush administration proposed a second tax-cut package in 2003 in the face of huge new fiscal demands, including a war in Iraq and an urgent ''homeland security'' agenda. By midyear, prudent forecasters pegged the 10-year fiscal projection at a deficit of well over $4 trillion.

So there you have it: in just two years there was a $10 trillion swing in the deficit outlook. Coming into power, the Republican leaders faced a choice between tax cuts and providing genuine financing for the future of Social Security. (What a landmark reform this would have been!) They chose tax cuts. After 9/11, they faced a choice between tax cuts and getting serious about the extensive measures needed to protect this nation against further terrorist attacks. They chose tax cuts. After war broke out in the Mideast, they faced a choice between tax cuts and galvanizing the nation behind a policy of future-oriented burden sharing. Again and again, they chose tax cuts.

The recent $10 trillion deficit swing is the largest in American history other than during years of total war. With total war, of course, you have the excuse that you expect the emergency to be over soon, and thus you'll be able to pay back the new debt during subsequent years of peace and prosperity. Yet few believe that the major drivers of today's deficit projections, not even the war on terror, are similarly short-term. Indeed, the biggest single driver of the projections, the growing cost of senior entitlements, are certain to become much worse just beyond the 10-year horizon when the huge baby-boom generation starts retiring in earnest. By the time the boomer age wave peaks, workers will have to pay the equivalent of 25 to 33 percent of their payroll in Social Security and Medicare before they retire just to keep those programs solvent.

Two facts left unmentioned in the deficit numbers cited above will help put the cost of the boomer retirement into focus. First, the deficit projections would be much larger if we took away the ''trust-fund surplus'' we are supposed to be dedicating to the future of Social Security and Medicare; and second, the size of this trust fund, even if we were really accumulating it -- which we are not -- is dwarfed by the $25 trillion in total unfinanced liabilities still hanging over both programs.

A longer time horizon does not justify near-term deficits. If anything, the longer-term demographics are an argument for sizable near-term surpluses. As Milton Friedman once put it, if you cut taxes without cutting spending, you aren't really reducing the tax burden at all. In fact, you're just pushing it off yourself and onto your kids.

You might suppose that a reasoned debate over this deficit-happy policy would at least be admissible within the ''discussion tent'' of the Republican Party. Apparently, it is not. I've seen Republicans get blackballed for merely observing that national investment is limited by national savings; that large deficits typically reduce national savings; or that higher deficits eventually trigger higher interest rates. I've seen others get pilloried for picking on the wrong constituency -- for suggesting, say, that a tax loophole for a corporation or wealthy retiree is no better, ethically or economically, than a dubious welfare program.

For some ''supply side'' Republicans, the pursuit of lower taxes has evolved into a religion, indeed a tax-cut theology that simply discards any objective evidence that violates the tenets of the faith.

So long as taxes are cut, even dissimulation is allowable. A new Republican fad is to propose that tax cuts be officially ''sunsetted'' in 2 or 5 or 10 years in order to minimize the projected revenue loss -- and then to go out and tell supporters that, of course, the sunset is not to be taken seriously and that rescinding such tax cuts is politically unlikely. Among themselves, in other words, the loudly whispered message is that a setting sun always rises.


What's remarkable is how so many elected Republicans go along with the charade. The same Republican senators who overwhelmingly approved (without a single nay vote) the Sarbanes-Oxley Act to crack down on shady corporate accounting of investments worth millions of dollars see little wrong with turning around and making utterly fraudulent pronouncements about tax cuts that will cost billions or, indeed, even trillions of dollars.

For some Republicans, all this tax-cutting talk is a mere tactic. I know several brilliant and partisan Republicans who admit to me, in private, that much of what they say about taxes is of course not really true. But, they say, it's the only way to reduce government spending: chop revenue and trust that the Democrats, like Solomon, will agree to cut spending rather than punish our children by smothering them with debt.

This clever apologia would be more believable if Republicans -- in all matters other than cutting the aggregate tax burden -- were to speak loudly and act decisively in favor of deficit reductions. But it's hard to find the small-government argument persuasive when, on the spending front, the Republican leaders do nothing to reform entitlements, allow debt-service costs to rise along with the debt and urge greater spending on defense -- and when these three functions make up over four-fifths of all federal outlays.

The starve-government-at-the-source strategy is not only hypocritical, it is likely to fail -- with great injury to the young -- once the other party decides to raise the ante rather than play the sucker and do the right thing. When the Democratic presidential contender Dick Gephardt proposed in April a vast new national health insurance plan, he justified its cost, which critics put at more than $2 trillion over 10 years, by suggesting that we ''pay'' for it by rescinding most of the administration's tax legislation. Oddly, it never occurred to these Republican strategists that two can play the spend-the-deficit game.

Not surprisingly, many Democrats have thrown a spotlight on the Republicans' irresponsible obsession with tax cutting in order to improve their party's image with voters, even to the extent of billing themselves as born-again champions of fiscal responsibility. Though I welcome any newcomers to the cause of genuine fiscal stewardship,

I doubt that the Democratic Party as a whole is any less dysfunctional than the Republican Party. It's just dysfunctional in a different way.

Yes, the Republican Party line often boils down to cutting taxes and damning the torpedoes. And yes, by whipping up one-sided popular support for lower taxes, the Republicans pre-empt responsible discussion of tax fairness and force many Democrats to echo weakly, ''Me, too.'' But it's equally true that the Democratic Party line often boils down to boosting outlays and damning the torpedoes. Likewise, Democrats regularly short-circuit any prudent examination of the single biggest spending issue, the future of senior entitlements, by castigating all reformers as heartless Scrooges.

I have often and at great length criticized the free-lunch games of many Republican reform plans for Social Security -- like personal accounts that will be ''funded'' by deficit-financed contributions. But at least they pretend to have reform plans. Democrats have nothing. Or as Bob Kerrey puts it quite nicely, most of his fellow Democrats propose the ''do-nothing plan,'' a blank sheet of paper that essentially says it is O.K. to cut benefits by 26 percent across the board when the money runs out. Assuming that Democrats would feel genuine compassion for the lower-income retirees, widows and disabled parents who would be most affected by such a cut, I have suggested to them that maybe we ought to introduce an ''affluence test'' that reduces benefits for fat cats like me.

To my amazement, Democrats angrily respond with irrelevant cliches like ''programs for the poor are poor programs'' or ''Social Security is a social contract that cannot be broken.'' Apparently, it doesn't matter that the program is already unsustainable. They cling to the mast and are ready to go down with the ship. To most Democratic leaders, federal entitlements are their theology.


What exactly gave rise to this bipartisan flight from integrity and responsibility -- and when? My own theory, for what it's worth, is that it got started during the ''Me Decade,'' the 1970's, when a socially fragmenting America began to gravitate around a myriad of interest groups, each more fixated on pursuing and financing, through massive political campaign contributions, its own agenda than on safeguarding the common good of the nation. Political parties, rather than helping to transcend these fissures and bind the country together, instead began to cater to them and ultimately sold themselves out.

I'm not sure what it will take to make our two-party system healthy again. I hope that in the search for a durable majority, Republicans will sooner or later realize that it won't happen without coming to terms with deficits and debts, and Democrats will likewise realize it won't happen for them without coming to terms with entitlements.

Whether any of this happens sooner or later, of course, ultimately depends upon the voters. Perhaps we will soon witness the emergence of a new and very different crop of young voters who are freshly engaged in mainstream politics and will start holding candidates to a more rigorous and objective standard of integrity. That would be good news indeed for the future of our parties.

In any case, I fervently hope that America does not have to drift into real trouble, either at home or abroad, before our leaders get scared straight and stop playing chicken with one another. That's a risky course, full of possible disasters. It's not a solution that a great nation like ours ought to be counting on.

Peter G. Peterson is chairman and co-founder of the Blackstone Group and chairman of the Federal Reserve Bank of New York. He served as secretary of commerce under President Nixon.


Copyright 2003 The New York Times Company

(Edited by Christian Wieland at 9:55 pm on June 9, 2003)

[Saqwnht]

June 15, 2003

The Poor as a Handy Distraction

The gravest questions of fiscal responsibility for the nation are being ignored in the freakish sideshow now under way in Congress over yet another tax cut in these fiscally difficult times. President Bush and the Republican leaders should be candidly debating the $2 trillion-plus mountain of deficits and debt they are rolling onto the backs of future generations through the administration's serial tax cuts. Instead, they are obsessed with the 2004 election cycle, wrangling over how best to throw a last-minute bone to low-income Americans shortchanged in last month's tax giveaway to the most affluent Americans.

Republicans voice concern that they seem compassionate, yet not extend "welfare" to the working poor. Lost in that debate is the fact that various indefensible tax shelters were protected as corporate welfare in the lobbying frenzy for the new tax cuts. Unmentioned, too, is the fact that the nation's richest 1 percent will garner better than 25 percent of the revenue cut. Those earning more than $500,000 will average $17,000, while those down in the $40,000 bracket average $320.

Without doubt, the 6.5 million minimum-wage families shamelessly neglected the first time around deserve the extra $400 in child care credits most other Americans are awaiting. The Senate's $3.5 billion short-term solution is preferable to the House Republicans' $82 billion move to up the tax-cut ante, but only relatively so. Washington's tax debates are but a piece of the bigger picture of an uninhibited binge of revenue cuts and deficit budgeting. Senate Republicans style themselves as more responsible than the House in demanding last month's total cut be no more than $350 billion. But the actual cost in deficit will be more than twice that once the "sunset" accounting gimmicks are removed, as promised.

The Bush cuts offer too little short-term stimulus while choking the long-term revenue flow for the looming time when Social Security and Medicare costs will balloon. Mr. Bush's growing need to float the federal government on borrowed money will crimp economic growth. This is the stuff of real debate. Instead we have the G.O.P. worrying a modest share for the poor. The outcome promises to position the president as a compassionate "moderate" in a cynical bit of right-wing theater produced by the House majority leader, Tom DeLay, the president's indispensable ally in budget politicking.


Copyright 2003 The New York Times Company

[shashaffff]

June 16, 2003

There Goes the Neighborhood

By WILLIAM JULIUS WILSON

CAMBRIDGE, Mass.

Advocates for the poor have protested President Bush's $350 billion tax cut on many grounds, notably its selective use of the per-child tax credit. But few have discussed its potential effect on one of the more remarkable long-term economic trends of the last decade: the decline in concentrated poverty in America.

A recent report for the Brookings Institution by a University of Texas social scientist, Paul Jargowsky, revealed that the number of people residing in high-poverty neighborhoods decreased by 24 percent, or 2.5 million people, from 1990 to 2000. Moreover, the number of such neighborhoods — the study defined them as census tracts with at least 40 percent of residents below the poverty level — around the country declined by more than a quarter.

The news has been greeted as a major step forward for inner-city blacks, because their neighborhoods tend to feature the highest levels of concentrated poverty. To some extent this is true, although perhaps not in the way either the political left or right are spinning it. And, as promising as the findings are, they do not signify that we've found a magic bullet in the war on poverty.

In fact, the study conforms to the long-held if oft-ignored fact that the state of America's urban core is not separate from that of the country's economy as a whole. Thus the notable reduction in the number of high-poverty neighborhoods, and the substantial decrease in the population of such neighborhoods, may simply be blips of boom times rather than permanent trends.

Social scientists have rightly devoted considerable attention to concentrated poverty because it magnifies the problems associated with poverty in general: joblessness, crime, delinquency, drug trafficking, family breakups and poor "social outcomes" like school performance. Moreover, as Mr. Jargowsky has emphasized in previous research, when high poverty rates spread through a neighborhood, middle- and working-class people tend to see the area as "dangerous." It becomes isolated, socially and economically, as people go out of their way to avoid it.

In 1990 almost a third of blacks lived in such neighborhoods; the 2000 figure was 19 percent. Yet despite this significant improvement, African-Americans still have the highest rates of concentrated poverty. In part, the state of inner-city ghettoes is a legacy of historic racial subjugation. And it is true that racial discrimination and segregation continue to play a role in limiting the progress of many African-Americans.

However, neither the spectacular rise in black concentrated poverty from 1970 to 1990, nor the dramatic decline from 1990 to 2000, can be explained mainly in terms of race. Rather, these shifts demonstrate that the fate of African-Americans and other racial groups is inextricably connected with changes across the modern economy.

The data bear this out. The declines in concentrated poverty in the 90's occurred not just in a few cities but across the country. Virtually all racial and ethnic groups recorded improvements. The number of whites living in these neighborhoods declined by 29 percent (from 2.7 million people to 1.9 million), and the number of blacks decreased by 36 percent (from 4.8 million to 3.1 million). For all races, the greatest improvements against poverty concentration were in the South and Midwest, the smallest in the Northeast, mirroring wider economic trends.

Nonetheless, there is a tendency among scholars, black leaders and policy makers to view the economic problems in the African-American community, including the growth of concentrated poverty, separately from national and international trends affecting all American families and neighborhoods. One reason may be a desire for tidy solutions. However, if the economic problems of the black community are defined exclusively in terms of race, they can be isolated and seen as requiring only race-specific solutions, as proposed by the political left, or narrow political solutions with subtle racial connotations (like welfare reform), as trumpeted by the right.

A look at the long-term statistics shows that neither welfare reform nor race-based programs seems to have had much to do with changes in poverty concentration. The sharp rise in concentrated poverty occurred during a period of rising income inequality for all Americans that began in the early 1970's. This was a period of decline in inflation-adjusted average incomes among the poor and of growing economic segregation caused by the exodus of middle-income families from inner cities. What had been mixed-income neighborhoods were rapidly transformed into areas of high poverty.

Almost 30 years ago, the African-American economist Vivian Henderson pointed out that "the economic future of blacks in the United States is bound up with that of the rest of the nation." So, just as blacks suffered greatly during the decades of growing separation between haves and have-nots, they benefited considerably from the incredible economic boom in the last half of the 1990's, which not only substantially reduced unemployment, including black unemployment, but sharply increased the earnings of all low-wage workers as well.

Undoubtedly, if the robust economy could have been extended for several more years, rather than coming to an abrupt halt in 2001, concentrated poverty in inner cities would have declined even more.

This cannot be proved now; data on concentrated poverty are provided only by the decennial census. But the Brookings report clearly shows that the favorable trend of the 1990's may be temporary rather than long term. Unemployment and individual poverty rates are on the rise again; more than 2.4 million jobs have disappeared in the last two years. And given the continuing increase in the Hispanic population, the number of high-poverty barrios is likely to grow rapidly in a sluggish economy.

That is why my concern extends beyond the details of Mr. Bush's tax cuts to the big picture. If, as many economists predict, the cuts result in huge budget deficits and further weaken a faltering economy, we may again see the depressingly high levels of concentrated poverty recorded in 1990.

The lesson for those committed to fighting inequality, especially those involved in multiracial coalition politics, is to pay more scrutiny to fiscal, monetary and trade policies that may have long-term consequences for the national and regional economies, as seen in future earnings, jobs and concentrated poverty. We must remember that high-poverty neighborhoods reflect America, all of America.

William Julius Wilson, professor at Harvard's John F. Kennedy School of Government and department of African and African-American studies, was awarded the National Medal of Science in 1998.


Copyright 2003 The New York Times Company

[emupsMaispubs]

June 26, 2003

Very Richest's Share of Income Grew Even Bigger, Data Show

By DAVID CAY JOHNSTON

The 400 wealthiest taxpayers accounted for more than 1 percent of all the income in the United States in the year 2000, more than double their share just eight years earlier, according to new data from the Internal Revenue Service. But their tax burden plummeted over the period.

The data, in a report that the I.R.S. released last night, shows that the average income of the 400 wealthiest taxpayers was almost $174 million in 2000. That was nearly quadruple the $46.8 million average in 1992. The minimum income to qualify for the list was $86.8 million in 2000, more than triple the minimum income of $24.4 million of the 400 wealthiest taxpayers in 1992.

While the sharp growth in incomes over that period coincided with the stock market bubble, other factors appear to account for much of the increase. A cut in capital gains tax rates in 1997 to 20 percent from 28 percent encouraged long-term holders of assets, like privately owned businesses, to sell them, and big increases in executive compensation thrust corporate chiefs into the ranks of the nation's aristocracy.

This year's tax cut reduced the capital gains rate further, to 15 percent.

The data from 2000 is the latest available from the I.R.S., but various government reports indicate that salaries, dividends and other forms of income have continued to rise since then, even as the stock market has fallen.

The top 400 reported 1.1 percent of all income earned in 2000, up from 0.5 percent in 1992. Their taxes grew at a much slower rate, from 1 percent of all taxes in 1992 to 1.6 percent in 2000, when their tax bills averaged $38.6 million each.

Those numbers can be read to show that the wealthiest, as a group, carried a disproportionate share of the overall tax burden — 1.6 percent of all taxes, versus just 1.1 percent of all income — evidence that all sides in the tax debate will be able to find ammunition in the data.

In 2000, the top 400 on average paid 22.3 percent of their income in federal income tax, down from 26.4 percent in 1992 and a peak of 29.9 percent in 1995. Two factors explain most of this decline, according to the I.R.S.: reduced tax rates on long-term capital gains and bigger gifts to charity.

Had President Bush's latest tax cuts been in effect in 2000, the average tax bill for the top 400 would have been about $30.4 million — a savings of $8.3 million, or more than a fifth, according to an analysis of the I.R.S. data by The New York Times. That would have resulted in an average tax rate of 17.5 percent.

The rate actually paid by the top 400 in 2000 was about the same as that paid by a single person making $123,000 or a married couple with two children earning $226,000, according to Citizens for Tax Justice, a labor-backed group whose calculations are respected by a broad spectrum of tax experts.

The group favors higher taxes on the wealthy, and its director, Robert S. McIntyre, said yesterday that the I.R.S. data bolsters that viewpoint. "Regardless of which party these 400 are in, these are the guys Bush wants to help, even though they have so much money they don't know what to do with it," he said. "How Bush feels about the half of the population that doesn't have much money is he got them a tax cut worth an average of $19 each."

William W. Beach, a tax expert at the Heritage Foundation, a conservative organization that favors lowering taxes for all Americans, said that the top 400 taxpayers made "the significant contribution" to government revenue — about one in every $64 of individual income tax paid. Cutting taxes, he said, will prompt the wealthy to invest more in the economy's growth.

Detailed information about high-income Americans has become increasingly important in setting tax policy, because the government relies on the top 1.3 million households for 37.4 percent of individual federal income tax revenue. The half of Americans who earned less than $27,682 in 2000, paid less than 4 percent of income taxes.

All of the I.R.S. data is based on adjusted gross income, the figure reported on the last line on the front page of individual income tax returns. Interest earned on municipal bonds, which are exempt from tax, is not included.

Over the nine years of tax returns that were examined for the new report, only a handful of taxpayers showed up in the top 400 every year, according to I.R.S. officials. In all, about 2,200 taxpayers made the cut even once. There were a few incomes of more than $1 billion a year in the group, but none as high as $10 billion.

The names of the wealthiest taxpayers are not disclosed in the report, which was prepared at the urging of Joel Slemrod, a University of Michigan business school professor who serves on an I.R.S. advisory panel and is a leading authority on taxation of high-income Americans.

The figures do not include the incomes of the many wealthy Americans who use shelters to reduce their reported incomes below the level of the top 400.

In 1999 and 2000, for example, William T. Esrey — then the chief executive of Sprint, the telecommunications company — earned more than $150 million in stock option profits, lofting him onto many lists of the best-paid corporate managers.

That income might have put Mr. Esrey in the I.R.S.'s top 400 taxpayers. But, as later came to light, Mr. Esrey bought a tax shelter from Ernst & Young, the accounting firm, designed to let him delay reporting the profits for tax purposes until the year 2030. Sprint's board forced Mr. Esrey to resign in March after he acknowledged that the shelter was the subject of an I.R.S. audit.

Over the nine years reviewed in the new report, the incomes of the top 400 taxpayers increased at 15 times the rate of the bottom 90 percent of Americans; their average income rose 17 percent, to $27,000, from 1992 to 2000.

Long-term capital gains accounted for 64 percent of the income of the top 400 in 2000, nearly double the level in 1992. Wages contributed 16.7 percent to the incomes of the top 400 in 2000, down from 26.2 percent in 1992, and dividends made up 2.8 percent.

A second report that the I.R.S. will make public today shows that the number of Americans with high incomes who pay no taxes anywhere in the world has reached a record. In 2000, there were 2,022 Americans with incomes of more than $200,000 who paid no income tax anywhere in the world, up from just 37 in 1977, when the report was first issued.



Copyright 2003 The New York Times Company

[Freefspruptpx]

The Tax-Cut Con

[FYIbiatches]

September 17, 2003

A Tax-Cut Victim

If there was one thing Americans had a right to expect from Congress, it was a federal plan to help the elderly pay for prescription drugs. It is a promise that has been made again and again — in particularly high decibels during the last presidential election. The House and Senate have passed bills, and although both are flawed, this page has urged Congress to finish work on them as a first step toward fulfilling this longstanding commitment.

Unfortunately, things have changed. The government cannot afford the program now. That is the fault of President Bush and the Republican majorities in the House and Senate. They broke the bank with their enormous tax cuts. The country is facing the largest budget deficit in history, and there is no realistic plan for getting it under control. The limited version of a prescription drug benefit now being considered in Congress would cost about $400 billion over 10 years.

Older Americans had a right to expect that help, but they do not have a right to demand it, not when it would be financed by borrowing, with the bills to be paid by their grandchildren.

Mr. Bush, a specialist in pain avoidance, told people that they could have the programs they wanted — prescription drugs for the elderly, better schools for children — along with modest tax cuts for the middle class and whoppers for the wealthy. When 9/11 occurred, the president simply added the war on terror, and then the war on Saddam Hussein, to the list. For all his talk about fiscal conservatism, Mr. Bush has never vetoed a spending bill, even the obscene $180 billion farm subsidy program. To pay for it all, he simply increased the deficit.

Deficits in and of themselves are not necessarily a problem, but the current one is frightening for two reasons. One is its size: projected at well above $500 billion for next year, and approaching 5 percent of the gross domestic product. The other is its permanence. Cutting taxes temporarily to fight the recession made sense, but the Bush tax cuts are meant to be permanent — even though Congress gave most of them a phony 10-year expiration date in an attempt to mask their effect.

Dropping the proposal is, of course, just what a large chunk of the Republican Party was hoping for all along. For those Republicans, deficits are a useful tool to beat back popular entitlement programs — a "starve the beast" strategy, in the words of Ronald Reagan's budget director. Democrats in Congress, meanwhile, rail against the deficit, but they are still pushing for the prescription drug plan. Like the tax-cutters, they are simply building up to some sort of financial Armageddon — like soaring interest rates or a collapsing dollar — and hoping that blame will fall on the other party.

Our answer is different. The people have to decide whether they want tax cuts or programs like the prescription drug plan. It's true that the tax-cut radicals will win this round. But then we will have an election.


Copyright 2003 The New York Times Company

[pimbertiemoft]

It's simple economics. Tax cuts give back money to hard working Americans. With that money they buy what they couldn't or wouldn't have bought without that extra check in the mail. They may go out and buy a new TV, or computer, or whatever. Then that boosts sales (which there are taxes on btw). So the government still gets a small amount of it back. At the same time, businesses do better because of more TV sales or computer sales. Then the business owners get more money, spend more, and hire more people. Those people spend money. The economy improves. At the same time, you have the democrats. They wish to raise taxes. When that happens businesses move out of the city/state, or wherever. The economy goes down. People go to states with less taxes. People intentionally shop in places with less taxes. If anyone really thinks taxes have no affect on how Americans choose to purchase things they better take a closer look. Now there is obviously a difference on income tax and taxes on sales. But democrats want to raise them all, which is why it is important to mention them both. People complain the government wont have enough money to spend without high taxes. But when the economy rebounds because of low taxes then business picks up, the government will have more businesses and goods to tax. Obviously there is so much involved that you can't analyze it briefly, as I attempted to do. But tax cuts do help hard working Americans, and they help businesses. And that is what people should know. The fact that our eceonomy still isn't doing horribly after 911 in a way shows that these tax cuts are providing at least some relief.