Bush's tax cut

As the war in Iraq comes to an end, we can now safely shift our attention to other pressing, and no less distressful issues.

Here's something to consider. During the past months, President Bush has been trying to push through Congress the newest component to his fiscal agenda: a big tax cut of $726 billion.

The tug of war between the executive and legislative branches has already begun. There is strong resistance from the Democratic Party and among some moderate Republican leaders to Bush's tax cutting policy. Consequently, the US Senate recently proposed to slash the tax cut by half to a more prudent $350 billion. On Tuesday, the President made a counteroffer, which would lower his proposal to $550 billion.

Negotiations will continue for some time, and the actual tax cut that Americans would receive could very well approach $550 billion, which is certainly not as high as the president initially proposed, but is large enough for him to claim victory.

"So why does this matter anyway?" -- You might rightfully ask. To be sure, fiscal policy is not nearly as exciting as, say, war. But the possible consequences of this tax cut, under the current economic environment will definitely be far-reaching and will affect ordinary Americans in a more direct manner than the Iraqi war has.

Since 2001, the economy of the United States has suffered greatly, and so far it has not yet recovered. An otherwise natural downturn in the business cycle was worsened by the terrorist attacks of Sept. 11, and a shameful series of corporate scandals that stained investors' confidence in the stock market.

Over the past two years, more than two million jobs have been lost in this country, raising the unemployment rate to 5.8 percent -- the highest it has been in a decade. People are really having a hard time keeping their jobs, not to mention finding a job. If you want to make a first-hand assessment of the current economic climate just ask any senior here at Tufts about his or her employment prospects.

The long neglected economy needs fixing ASAP and Bush is certainly feeling the heat. His economic team thinks this tax cut will provide the necessary stimulus for the economy to get it back on track. Bush, more than anyone, knows that failing to provide economic relief soon enough will spell trouble for him in November 2004. Yes, the presidential election is not too far away, and we all know what can happen to a popular and victorious commander in chief if the economy isn't working. Is George W. walking in the same direction, which led his own Dad to electoral defeat? D?©ja vu? W certainly hopes not.

The problem, however, is that it is far from clear as to whether this tax cut will provide the stimulus the economy needs. Furthermore, these massive tax cuts will almost certainly translate into dangerously high public deficits for the next decade. We could be seeing a lot of red ink in the near future with annual deficits running as high as $400 billion for the next ten years. Not long ago, in the years of our economic bonanza, projections of budget surpluses for years to come seemed to guarantee protection for such programs as Social Security and Medicare. But a combination of a recession with the first phase of Bush's tax cuts quickly vaporized those projections. The rewards of sound fiscal discipline were squandered in the first two years of the Bush administration.

Congressional leaders, as well as, leading economists question the wisdom of pursuing another gigantic tax cut precisely in a time when budget projections seem so dire. Large deficits are hardly a good thing, and they have to be reckoned with sooner or later. For one thing, government borrowing could have a crowding out effect, thereby pushing interest rates upward for private loans. This in turn could further slow down economic activity over the next years. The short-term gains of putting money back into people's pockets might be offset by the negative impact of large deficits such as the ones this country experienced during the 1980's. Additionally, the costs of the current war with Iraq and the subsequent reconstruction of that country are anyone's guess. These costs could severely worsen the deficit projections.

Is it really prudent to starve the government of badly needed resources precisely at a time when the country is embarked on a military campaign that can last for years? Is it wise to place the government on a path of future deficits precisely at a time when State governments across the nation are facing some of the most worrisome fiscal crises in decades? Is it fair to cut back on badly needed social programs, including benefits for veterans, so that the wealthiest Americans benefit from a large tax cut? The answer to these questions could be no, and not because tax cuts are bad; it just may not be the right time to do it.