Bush faces many economic red flags
But when politicians get economic, the economy gets political, and by Tuesday it was clear that Democrats and Republicans weren't just trying to save the economy — they're trying to save their economy. And maybe even win a few elections along the way.
A capital idea
Trent Lott, Dennis Hastert and the Republicans in Congress want an emergency cut in the capital-gains tax — the tax levied on profit-making investment transactions — to get Wall Street churning again. And aside from the fact that profit-making investments aren't exactly common in these dour Dow days, it might work — such a cut would likely encourage some investors to liquidate some investments to free up spending cash. And a flurry of selling — just what Wall Street needs, more selling — could indeed send some tax-receipt cash back to Washington in a hurry.
But it's no coincidence that this is the very same tax cut that Dick Armey and his supply-side compatriots have been after for years, through boom times and bust. Because the economic stimulus would be reserved for the 50 percent of Americans who are invested in the markets — and most of that savings would go to investors who buy and sell stocks with some frequency. In other words, wealthy people.
In still other words, mostly Republican voters, which is why the cut has little chance. With the surplus already headed into the red, Bush isn't about to bust the budget again for the Americans he's helped the most so far —and who, their power to goose Wall Street notwithstanding, need the money least.
Save Social Security last
The Democrats sound a little confused. At first they were hoping to win the political war merely by standing back and hoping Bush has to dip into Social Security surpluses and nail him for "endangering our seniors" or some such voter-friendly nonsense — Social Security won't need the money for at least a decade — and then nail him for the economy too if things don't turn around in time. As Tom Daschle said Sunday, "It's his budget, it's his economy, it's his tax cut, it's his solution."
But some of them are getting itchy. The same day, Kent Conrad and John Kerry (he of the 2004 presidential ambitions) raised the possibility of a cut in the payroll taxes that pay for Medicare and Social Security (tied, of course, to a rollback of the future phases of Bush's tax cut). The downside, of course, is that it'll be a little tough to rail against Bush for dipping into Social Security when they're proposing to cut into the very tax revenues that fill the Fund's coffers. Not exactly what the pollster ordered.
The upside is that such a tax cut goes to the bottom of the socioeconomic ladder — even those who don't make enough to pay income taxes chip in a slice of their wages for those entitlements. Those are the people who missed the boom and are getting hurt most by the bust — and, some economists say, they're the people most likely to spend the money and keep the economy above water until businesses start making capital investments again.
In other words, mostly Democratic voters.
A White House stalls for time — and money
Unlike the congressmen, who are starting to sweat profusely about the 2002 midterms, stupid, George W. Bush can afford to be patient — recessions are generally two-year beasts at most. While he tries to walk the political line in the interim between feel-your-pain and scare-you-silly, Bush isn't ready to offer much more than photo-ops and the $300 tax rebates he's already sent out. For now, and until the quasi-recession turns real, that's all he can afford.
So Bush, in a trick we should all be used to by now, is selling his political agenda — the one that predated the slowdown — as an economic one. "Fast- track" trade authority would send a message to CEOs at home and trading partners abroad that new markets are on the way. The pro-production energy plan, including Arctic drilling, would of course create innumerable jobs and other economic goodies. And balancing the budget without using Social Security funds — the very reason he's been so cool to GOP plans for further economy-juicing tax cuts — is now touted as an economic stimulus of its own.
That last claim happens to be true — sort of. Rock-hard fiscal discipline can persuade the bond markets to bid down long-term interest rates, which make home and car loans cheaper and borrowing consumers richer. But mortgage rates are already at lows for the year, mainly because these days the bond marketeers' first concern is the same as everybody else's: the dismal state of the economy. And economists have been saying since the days of Keynes that austerity is definitely not the way to end a slowdown — in the short run, it's likely to make things worse.
The stimulus that dare not speak its name
So if the economy could lobby Washington, what would it ask for? Quite possibly the bit of economic stimulus that's the longest shot in a field of them, what even the cantankerous Paul O'Neill shut his mouth about long ago: corporate tax cuts.
Bush put the kibosh on them even before the slowdown kicked in — too rich- skewed, and he had a bigger tax cut to sell — but he might at least consider renewing his promise to tackle them next year. This was largely a business-led boom, it's been a business-led slowdown, and it has to be a business-led recovery.
And the answer to making this everywhere-but-the-GDP-numbers recession as quick and painless as possible may not lie in trying to tide the consumer over while Wall Street waits and worries for businesses to start investing again. It may be giving those businesses — and the investors that bet on them — a reason to take that leap of optimism as soon as possible.
But try selling that one to the voters.