[Homestead] The Fiscal Funhouse

Tvoivozhd tvoivozd at infionline.net
Tue Sep 14 12:03:24 EDT 2004

"Mirror, mirror on the wall---who's the most stupid sandbox economist of 
them all?" You're right, it is a four-letter word.
Reagan had to quickly backtrack---covered his increased taxes with the 
euphemism "revenue enhancement". Bush never found a fiscal hole that he 
didn't lust to dig deeper.

latimes.com <http://www.latimes.com/>


  Bush's Fiscal Funhouse

September 14, 2004

No matter how big the federal deficit may appear to be, the economy can 
quickly grow its way out. That, anyway, is President Bush's claim. To 
his coterie of supply-side enthusiasts, tax cuts are the equivalent of a 
real perpetual motion machine. The faster you cut taxes, so the theory 
goes, the more revenue the federal Treasury should receive as the 
economy booms.

Considering what that theory did to the U.S. economy under Ronald 
Reagan, it's the triumph of hope over experience. Reagan scrambled to 
enact tax increases to ameliorate huge deficits.

Even as the current White House clings to the theory, a new report from 
the Congressional Budget Office projects a $422-billion deficit this 
year and $2.3 trillion over the next decade, even if the current tax 
cuts, technically set to expire over the next few years, are not 
extended. If they are, it projects a tab of $4.5 trillion. The $2.3 
trillion is already higher than the office's previous estimate in March 
because of increased spending by Congress, which is stuck with paying 
for, among other things, prolonged wars in Iraq and Afghanistan.

In other words, this deficit, unlike previous ones, is not a blip, but a 
structural one. To make it look as though the deficit actually were on 
the mend, the administration is trumpeting the current record 
$422-billion estimate as lower than its original, deliberately 
overstated $445-billion prediction in July. It isn't as though Congress 
is resisting. To disguise the true costs of many tax cuts, Congress 
phases them out each year on paper, only to renew them in practice. Even 
the CBO's $4.5-trillion deficit over 10 years is almost surely too 
optimistic — it's based on the assumption that funding for domestic 
programs will not rise faster than inflation and not keep pace with 
population growth.

But couldn't domestic spending be reined in to help curb the deficit? 
Not exactly. About 70% of spending increases since 2001 have been for 
defense, homeland security and international affairs. Tax cuts account 
for about 58% of the budget deficit in 2004. If Congress decided to 
target areas like education and health, the most it could painfully 
squeeze out would be a few billion.

Federal Reserve Chairman Alan Greenspan keeps warning that federal 
profligacy will force interests rates higher to avert inflation. He 
reminded Congress last week of Economics 101: higher interest rates 
choke off economic growth and increase mortgage rates and unemployment. 
To avoid this scenario, Congress would have to return to so-called "pay 
as you go" rules in which spending increases are matched by tax hikes, 
and tax cuts by lower spending.

Bush continues to peddle the illusion of costless tax cuts. If his cuts 
are extended, even increased, it's small consolation that the myth that 
they can pay for themselves will be shattered.

If you want other stories on this topic, search the Archives at 
latimes.com/archives <http://www.latimes.com/archives>.
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Copyright 2004 Los Angeles Times

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