Excerpt--
America's fiscal position has deteriorated fast during George
Bush's presidency. It will not be easy to reverse
... Tax cuts are the central pillar of Mr Bush's
economic strategy. He has chopped taxes in every year of his presidency, in all by as much as Ronald Reagan did in the early
1980s. His first tax package, signed into law in June 2001 and worth $1.35 trillion over ten years, was a campaign promise.
It cut marginal income tax rates, gradually eliminated the estate tax and raised the child tax credit, ostensibly to make
sure that the budget surplus was returned to Americans and not frittered away in Washington.
A year later, the emphasis was on stimulating the sluggish economy
by giving firms tax incentives to invest. In May 2003 came another big tax plan, again sold as a stimulus, but designed mostly
to shift the tax burden away from investment income by cutting taxes on dividends.
The buzz in Washington is that this tax-cut strategy will continue
into election year. The White House is said to be working on a new tax package for 2004, focused on dramatically expanding
tax-free retirement and savings accounts. Politically, the goal is to appeal to America's large, and growing, investor class.
Economically, it would shift the tax burden yet further onto wage income. ...
The combination of a sharp economic slowdown, tax cuts and higher
spending has transformed America's budget. When Mr Bush ran for office, the fiscal surplus was 2.4% of GDP,
one of the highest among big rich countries. By fiscal 2003, the budget deficit had reached 3.5% of GDP.
Next year, by official forecasts, it is expected to reach 4.3% (see chart 1).
According to the Bush folk, this shift is unfortunate but hardly worrying.
...
ABC News and the Washington Post, published
on November 2nd, showed that 53% of respondents disapproved of Mr Bush's tax policy. The large cast of Democratic presidential
hopefuls claim Mr Bush's tax cuts have been a giveaway to the rich, wrecking the economy and mortgaging the future for America's
children.
More sober analysts are also worried. ...
... This time the turnaround will be much tougher.
There will be no “peace dividend” from the end of the cold war (indeed, the pressure on military spending may
continue to increase). America is unlikely to see another stockmarket bubble, with its surge in tax revenues. As baby-boomers
retire, the pressure from entitlement spending will be more acute. Set against this background, the path back to a sustainable
fiscal policy will be extremely painful, even without any dramatic fiscal crisis. Long after Dubya is back on his ranch, Americans
will be trying to recover from the mess he created.
