When the Sun Never Sets

The nefarious effects of Bush's latest tax cut will continue on, and on, and on

The $350 billion tax cut President Bush signed last week is a three-dimensional victory, yet another manifestation of the Rove-Bush strategy: win now, win later, and win even by policies that fail in their own terms. Unlike his father, who chose to ride out his recession by not acting to stimulate the economy, and who was seen as out of touch as a result, George W. has won big now by showing that he is not just a foreign-policy President. True, there is not much stimulus in the tax cut, but there is enough for Bush to take credit if the recovery predicted for later this year and 2004 actually occurs. Democrats taking solace from the fact that the particulars of the tax cut are unpopular betray the short-range tactical outlook that disables their party against the future-focused GOP. The improved economy will be universally popular, and then so will the tax cuts that supposedly brought it on.

Bush's victory will extend at least through 2008, a presidential election year, when most of the tax cut is due to "sunset." The Democratic candidate for President then, whether an incumbent or not, will have to declare for or against making the cuts permanent. If "for," he or she will not be able to promise the domestic spending on health care, education, and the environment that is the Democratic answer to Republican tax cuts. If "against," the candidate will court the fate of Walter Mondale, who ran for President in 1984 on a platform of raising taxes and lost forty-nine states. The strategy being pursued by several of the Democratic contenders for 2004 of promising to sunset some parts of the tax cut and keep others will clear neither them nor the 2008 Democratic nominee of the charge of raising taxes. And if the tax cuts the 2008 Democrat wants to end are the "unpopular" ones related to dividends and capital gains, he or she will be accused of playing hob with the "expectations" of business and Wall Street, on which the 401K pensions of millions who wouldn't know a dividend from a cord of wood depend. That every Democratic candidate for Congress will have to walk this same plank assures that at least a few of those voting for "more taxes" will lose their seats, strengthening GOP control over the House and Senate.

You can count on it: the survival instinct of politicians will stop the sun from setting on the tax cut, meaning that its total will not be $350 billion, but $800 billion to $1 trillion. Add that to the $1.5 to $2 trillion ten-year total of the Bush 2001 tax cut, full of provisions that will "sunset" in 2010 (oh, brother), and it is clear the sun will never set on massive budget deficits, either. The deficit this year will top the all-time high recorded under Bush 41, though, as aides to Bush 43 insist, it is smaller as a percentage of the GDP. The deficit will not have negative effects this year or next—not with the economy emerging from a trough and interest rates at historic lows. The negative effects await the future.

A study prepared by the Bush Treasury provides a scary preview: the U.S. faces chronic budget deficits of at least $44,200 billion— the chasm between revenue and outlays promised to baby-boom retirees. To quote The Financial Times, which obtained a copy of the study last week, "The study's analysis of future deficits dwarfs previous estimates of the financial challenge facing Washington. It is roughly equivalent to 10 times the publicly held national debt, four times U.S. economic output or more than 94 percent of all U.S. household assets." Only "painful" spending cuts, tax increases, or the two combined can close this funding gap. It will take the equivalent of "an immediate and permanent 66 percent across the board income tax increase" to honor future obligations to the baby boomers. Of course, rescinding all the Bush tax cuts, by the reckoning of the Center for Budget and Priorities, would cover the shortfall in Social Security and Medicare combined. Much of the gap in Social Security could also be closed by obliging the heirs of Warren Buffet, Bill Gates, et al. to pay an inheritance tax on their billions. Bush wants them to pay nothing, and they will pay nothing in 2010 and beyond unless Congress can find the nerve to sunset the elimination of the "death tax," the Social Darwinist travesty included in the 2001 tax cut.

No wonder this study, prepared under the since-defenestrated Paul O'Neill, was left out of the Bush budget. The White House denied the charge, leveled by the economist Laurence Kotlikoff, a Boston University expert on budget projections, that it suppressed the study; but one of its authors said he'd assumed it was "slated to appear" in the budget.

By any definition, not acting now to narrow the gap between revenues and outlays is a dereliction of fiduciary responsibility. Cutting taxes in the face of it is willful recklessness. But this policy failure is a political success for the Rove/Bush strategy of keeping the sun from setting on the GOP era. Rove is open about the alchemy required. He laid it out for his Boswell, the invaluable Nicholas Lemann, of The New Yorker. Tax cuts and budget deficits will starve the government of funds for discretionary spending on things like after-school programs, health care, and public transportation. Receiving fewer services, Americans will demand tax relief. The idea is to create a permanent constituency for tax cuts, especially among poorer Americans, those "lucky duckies," in the words of a Wall Street Journal editorial, who pay little or no federal income taxes now. The Journal, the Administration's oracle on taxes, says the key to cutting government is to shift more of the tax burden on to the people at the lower end of the economic spectrum—those who work at Wal-Mart, who clean office buildings, staff nursing homes and school cafeterias. Since most state tax codes follow the federal template, the Bush cuts will trigger state income tax cuts, which will force more reductions in state spending and/or increases in state sales and local property taxes to balance state budgets. Sales and property taxes fall with painful severity on the less affluent. Piece by piece, under successive tax revolts, the regulatory responsibilities assumed by the federal government beginning a hundred years ago will be abandoned, and the programs of the Great Society (Medicare, Medicaid, Federal Aid to Education, Head Start, etc.) and the New Deal (Social Security) will be hollowed out, dismantled, or privatized.

The Rove-Bush goal is to return government to its size before the New Deal, leaving the individual more exposed to corporate power than at any other time since the 1920s, or since the days of Rove's hero, William McKinley. It can happen here. In the future that is already here, charted by deficits and demography, it has already happened.