Hitting the trifecta. Tax cut consequences.

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It's a NYT article, so I must cut and paste or Lars will ask me why he was sent to the Registration page.

December 7, 2001

Hitting the Trifecta By PAUL KRUGMAN E-mail: krugman@nytimes.com

Shortly after Sept. 11, George W. Bush interrupted his inveighing against evildoers to crack a joke. Mr. Bush had repeatedly promised to run an overall budget surplus at least as large as the Social Security surplus, except in the event of recession, war or national emergency. "Lucky me," he remarked to Mitch Daniels, his budget director. "I hit the trifecta."

Lucky him, indeed. The Enron analogy will soon become a tired clichι, but in this case the parallel is irresistible. Enron management and the administration Enron did so much to put in power applied the same strategy: First, use cooked numbers to justify big giveaways at the top. Then, if things don't work out, let ordinary workers who trusted you pay the price. But Enron executives got caught; Mr. Bush believes that the events of Sept. 11 will let him off the hook.

Earlier this year Mr. Bush used projections of vast budget surpluses to push through a huge, 10-year tax cut. Most of that tax cut went to people with incomes of more than $200,000 per year. Now Mr. Daniels tells us that the budget — not just the budget outside Social Security, but the whole enchilada — will be in deficit through 2004. Since the administration's phony budget math ("fuzzy" just doesn't cut it at this point) gets phonier the further you go into the future, this means that we have effectively returned to a state of permanent deficit.

However, with television busy reporting from the caves of Tora Bora, this revelation — which shows that the tax cut was sold on utterly false premises — wasn't even considered headline news.

Administration officials insist that the economic slowdown and the war on terror, not the tax cut, are responsible for the red ink. But this is flatly untrue: antiterror spending is a minor factor, and the persistence of projected deficits into the indefinite future tells us that it's not caused by the recession either.

Anyway, they're missing the point. Opponents of the administration's plan always warned that it was foolish to lock in a giant tax cut on the basis of hypothetical surplus projections. They urged, to no avail, that we wait to see the actual budget results. Now their warnings have proved prophetic — and ordinary Americans will suffer because they were ignored.

The administration now says that the tax cut was necessary to fight the current recession. But nobody is questioning the $40 billion in rebates actually paid out so far, and few would complain about another round of temporary tax cuts for the year ahead. It's the huge further tax cuts that will take place after 2002 — tax cuts that are now the law of the land — that are the problem. But we're supposed to accept those future cuts as a fait accompli. Hey, Mr. Bush hit the trifecta.

Meanwhile, the return of budget deficits has real, nasty consequences. Prescription drug insurance is, of course, dead. Bolstering Social Security? Don't be silly: payroll tax receipts are being used neither to acquire assets nor to pay down federal debt; instead, they are subsidizing deficits in the rest of the government.

And austerity rules, even in areas you might have thought were of the highest priority. Money to rebuild New York? Sorry, no. The government's own experts say we need $3 billion to guard against bioterrorism? Cut the number in half. Tax cuts are more important.

Meanwhile, state and local governments, savaged both by recession and by new security expenses, are firing teachers and slashing services. How about some revenue-sharing from the feds? Never mind.

Whenever they were asked, voters said that the "compassionate" parts of Mr. Bush's campaign promises — securing Social Security, providing more money for prescription drugs and education — were more important to them than tax cuts. But they were assured that there was enough money for everything. Those assurances were false — but the tax cut is sacrosanct, while the rest is expendable.

Mr. Bush could try to undo some of the damage, by canceling future tax cuts for the top income bracket. Instead, he wants to accelerate those cuts. That's the moral equivalent of the big bonuses Enron gave to executives just days before it went bankrupt.

Horse racing is a zero-sum game; so, it seems, is budget politics. Mr. Bush hit the trifecta; the great majority of Americans lost, big time.

Copyright 2001 The New York Times Company | Privacy Information

-- Anita (Anita_S3@hotmail.com), December 07, 2001


Registration is so typical of Liberalism's love of red-tape and bureaucratic detail. It is a metaphor of busy-bodyism and regimentation in the name of order but really exists to perpetuate the Established Order. (I am preparing a major think-piece on the insidious nature of registration. Watch for it!)

-- (lars@indy.net), December 07, 2001.

"Say this for Krugman: though an unabashed liberal (he plans to vote for Bill Clinton), he's ideologically colorblind. He savages the supply-siders of the Reagan-Bush era with the same glee as he does the "strategic traders" of the Clinton administration."

I don't doubt that Krugman is a smart fellow. He makes good points, particularly on free trade. Krugman is far more interesting on technical issues than in his glib op-ed pieces. Economists try to understand how the economic world works. Krugman wants to tell us how the world should work putting him in the company of liberals everywhere.

Personally, I think instead of a tax cut within the existing system, we should have a massive restructuring. As noted in other posts, I favor a flat tax on income and corporate profits combined with a national sales tax. While Krugman is wringing his hands about the lack of "compassion" in the budget, he is ignoring the larger problem. The current system of taxation (and spending) is grossly inefficient and market-distorting. Krugman should fret about the lack of compassion for those completing the 1040 Long Form.

-- Ken Decker (kcdecker@att.net), December 07, 2001.

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