Economic Delusion, Political Disaster

By JOHN KENNETH GALBRAITH

CAMBRIDGE, Mass. — I am not, in my own view or that of others, a plausible political adviser to the Bush administration, but I would like to suggest that it could be on course for a powerful political disaster. Following a period of insane speculation, we are thought now to be facing a recession, possibly even, so far as there is a difference, a depression.

On this the new administration agrees; it has given its support for two measures for strengthening the economy. Both have proved useless in the past and now owe their acceptance to personal attractiveness and political convenience. They are reliance on the Federal Reserve and reliance on tax reduction for support to the economy.

The reliance on the Federal Reserve and its cuts in the discount rate proceeds from the wonderful convenience of having an action available that is above politics and much more mentally agreeable than anything of substantive value. Ever since 1913, the founding year of the Federal Reserve, there have been great hopes for the stabilizing effect of its actions.

The succession of boom and bust, or inflation and recession, has continued ever since. During the Great Depression, the Federal Reserve was wholly ineffective; during World War II, when inflation was a serious menace and we took life seriously, Federal Reserve action was simply set aside. The Reserve owes its continuing standing to the thought that bankers have some peculiar effect on the economy and, especially, to the exceptional convenience of having a remedy that can be simply announced, without legislators and without regard for the great complexities that govern economic behavior. Also, needless to say, it now owes much to the extraordinary theatrical talent of Alan Greenspan, the Federal Reserve chairman. To rely on the Reserve as a remedy for an emerging recession is optimism carried to the point of foolishness.

The other political threat to the administration comes from tax reduction. This, as support to the economy, was announced immediately by President Bush on taking office. Most of the benefit, as now more than amply agreed, goes to the very affluent. In an economic downturn, those so favored do not spend, because they have no particular need. That is an aspect of wealth. And given the uncertainties of the economy, they do not readily initiate or invest.

It is true that middle- and lower- income folk do spend, but they do not get a significant share of the benefit, and the very poor get none at all. And such expenditure as there is here goes for the daily necessities of life, not for the things on which recovery depends. To repeat, those of middle and lower income are not the beneficiaries in any case. The effect of tax reduction is not on the economy but on the pleasure and political gratitude of those who receive it.

Since the days of Herbert Hoover, who tried tax reduction with no result, depression or recession has been the political misfortune of government with the strongest political effect. After the Great Depression, the Republicans were out of office for 20 years. This sort of rejection is what the Bush administration, substituting the preference and enjoyment of the affluent for reality, is risking. If there is a recession and no remedial action beyond that of Mr. Greenspan and the lowered expectations of the Internal Revenue Service, the administration faces political difficulty, even disaster.

I repeat, it is not my tendency to render advice to a Republican president, but this prospect is sufficiently grim for so many that one should break even the best established rules.

John Kenneth Galbraith, a professor emeritus of economics at Harvard, is the author of "The Good Society."

-- Mr. Galbraith (harvard,@you.fools), March 11, 2001

Answers

>>Since the days of Herbert Hoover, who tried tax reduction with no result, depression or recession has been the political misfortune of government with the strongest political effect.

But jeez, Ken, Bill passed the biggest increase ever, and the result has been 'recession'. JFK/LBJ and Reagan passed tax reductions, on the other hand, with no recession- quite the opposite. So it sounds as though your nice letter has more to do with social sculpting than it does with economics.

But you do have an interesting insight- battle over tax relief tanking a political party for years... and this is why I think the Dems have chosent this issue, despite overwhelming support by the people, to fight against it. If the Dems lose this battle, they will tank for years.

One more observation on the media. When the bad guys are going against an issue the media supports, we daily see them trot out their polls & surveys on why public opinion should carry the day. However, I do not see their polls everyday showing 88% (0r whatever high number) of Americans favoring getting their money back. No one I speak to even understands why this is a matter of controversy.

-- Smilla (SMC@CHARTNET.COM), March 12, 2001.

Hmmm....Smilla, I guess that is why the deficit is paid down and there is a huge surplus (I don't remember a surplus when Republicans were destroying the country). Get your head out of your ass and quit blindly following the appointed loser that stole the presidency. Oh I get it, you must make millions and stand to gain "big time" from King Georges so called tax cut. By the way, more American citizens voted for Gore than Bush. He does not represent the will of the people. Hail to the thief!

-- Mikel (MEJ023@earthlink.net), March 12, 2001.

Mikel, it seems you need to get a grip on reality. Bush is pres; Gore lost. Get over it!

Article is intertesting NOT; just another criminal liberal piece on how the "wealthy" benefit from Bush's tax cut. Where's my lexus? The gov should be spending our tax dollars on cars for everyone! Just remember folks this recession was started during the Clinton administration.

-- Maria (anon@ymous.com), March 12, 2001.

In order to give the bulk of the tax cut to the poor the Federal government would have to effectively subsidize those individuals beyond what they already pay in taxes. In other words, a massive welfare entitlement would have to be created. In economic terms I would consider that to be a massive disincentive to productivity.

Otherwise, any proportionally equal across-the-board rate cut will always mathematically provide greater dollar relief to the more wealthy by sheer logic, since we have a skewed tax rate towards the upper scales. It is amazing that the liberals decry the spending of the "rich" while on the other hand make statements such that the "rich" would not spend the tax cuts. For once, maybe the libs should define where the "rich" begin, and why only certain income levels (once again conveniently undefined by the libs) are eligible to be called "working families" while all others are by inference "non-working" families.

-- kenneth galbraith is a politician (moreinterpretation@ugly.com), March 12, 2001.

Maria, Sorry I will never get "over it". I don't recognize thiefs (no matter what they stole). I'll never forget Bush sitting at his house with his mom and dad on election night when it was mentioned that Florida had been called for Gore and Bush stated that he wasn't worried about Florida (like he already had an idea what was really going to happen) It was sickening. It is disgusting to see Republicans (ditto monkeys) with their heads buried up Bushes ass and enjoying the smell.

-- Mikel (mej023@earthlink.net), March 12, 2001.

"Maria, Sorry I will never get "over it". "

Well then I guess you'll just get an ulcer cuz he's going to be around for the next 4 years, pushing a BIG EVIL TAX CUT THAT WILL TAKE MONEY AWAY FROM BABIES AND STARVE THE ELDERLY!!!

[ and btw, the federal government's spending will STILL grow beyond the rate of inflation, like it always has ]

-- the beast must be fed (moreinterpretation@ugly.com), March 12, 2001.

All 50,000,000 of us are going on welfare in order to tank the economy so Bush is not reelected.

-- welfare (is@good.man), March 12, 2001.

"In order to give the bulk of the tax cut to the poor the Federal government would have to effectively subsidize those individuals beyond what they already pay in taxes."

If the tax cut remained at the current insanely high proposed level, then perhaps, if redirected to our poorest, it would surpass what poor people make, and they would indeed get more from the government than they make in a year. But the tax cut is insanely high because the bulk of it is directed toward the upper income bracket only. Thus, your argument is specious.

All Americans should benefit from a tax cut, not only the very wealthy. There is no benefit to society as a whole in indulging the rich while cutting the meager social spending we already have.

People seem to forget that the health of society as a whole increases the wealth and health of each individual within that society. Take public health spending, for example. I personally would prefer to spend more of my taxes on public health than live in a society where lockjaw and TB run rampant. This becomes a very real scenario in a climate of shrinking public health spending, where vaccination programs are privatized, and those companies that provide them cannot make a profit and fold shop. This recently occurred in the case of lockjaw vaccinations. We now have but one lone company bearing the weight of distributing lockjaw vaccinations to the public. What will happen if they cannot sustain this profit-losing venture?

-- Tax Cuts for the Majority (not@the.minority), March 12, 2001.

Why do liberals think that it is fair for Americans who earn more income to not only pay more income taxes, but to pay them at a higher rate ?

The wealthy pay so much more in taxes already, that it is only common sense that a tax reduction would benefit those who are paying the vast majority of the taxes more than it would benefit those who pay relatively little in taxes.

What is the liberal's dream income tax schedule? Government checks for their income level and below, and a 100% tax rate for anyone who makes more?

You whining liberals who are complaining about tax cuts are truly nothing more than socialists. Instead of whining about the unfairness of it all, why don't you make good use of your time and figure out how to succeed financially so that you can move up the tax bracket a notch or two.

Maybe then you would understand the unfairness of a system that as you succeed financially, takes not just more, but a higher percentage of what you earn.

-- J (Y2J@home.comm), March 12, 2001.

All Americans should benefit from a tax cut, not only the very wealthy. There is no benefit to society as a whole in indulging the rich while cutting the meager social spending we already have.

ALL he said ALL, what part of ALL dont you understand asshole?

-- read it (readall@it.all), March 12, 2001.

Liberal Anon, aka read it,

Your ignorance almost certainly excludes you from the role of taxpayers, but since you apparently have an interest (though doubtedly a vested one) in this tax cut argument, I will answer you.

The proposed Bush tax reduction plan reduces income taxes to ALL of those Americans who pay income taxes.

I would venture that you don't know this fact from personal experience, but to pay income taxes, you must first have income. In the current scheme of things, that income must be above a certain level before you must pay tax upon said income. As some Americans do not generate income above that threshhold level, and indeed, as some Americans generate no income at all (as surely you can attest), then we can conclude that not ALL Americans pay income taxes. Therefore, how is that you whining liberals expect an income TAX reduction to benefit ALL Americans, when clearly not ALL Americans pay income taxes?

-- J (Y2J@home.comm), March 12, 2001.

J,

Your argument that ALL Americans benefit from this is pure horseshit.

There is no denying that Bush and the House GOPers rushed through a measure that by lowering tax brackets sends far more "relief" to higher-income Americans than lower-income Americans. The top 1 percent would get about 44 percent of the Bush tax give-back, according to Citizens for Tax Justice. The GOPers argue this is only natural since the rich pay more in taxes. But by one estimate, the 1- percenters pay 39 percent. Thus, even by Bushian standards, they will pocket more than their fair share. (When Bush's Treasury Department released figures on the distributional impact of the President's proposed tax cut, it conveniently left out the calculation for the top 1 percent, which previous administrations customarily included.)

There’s no compelling need to structure a tax cut in favor of the wealthy. If the goal is to send $2 trillion back to people to spark the sluggish economy, why not zap it all to middle- and low- income citizens? Is it better that a boost in consumer spending be Lexus-driven rather than Taurus-driven?

This was how Republicans and the corporate lobby tried to demonstrate the Bush tax cut is good for working Americans: the National Association of Manufacturers sent out a memo to business groups that urged lobbyists to show up at Capitol Hill tax cut rally wearing hard hats and non-business attire. "WE DO NEED BODIES -- they must be DRESSED DOWN, [to] appear to be REAL WORKER types, etc," said the note, which was obtained by the Washington Post. Camouflage -- just like in real warfare -- to hide the truth.

Under the House measure, the top 1 percent would see their after- tax income go up 3.8 percent, the bottom 20 percent, 0.6 percent, according to the Center on Budget and Policy Priorities.

Why shouldn’t those numbers be flipped? Millions of low-income Americans who pay little, if any, income taxes but who are socked by Social Security taxes would realize no relief under this plan. And the Bush/GOP tax cuts are based on iffy surplus projections, so there’s a possibility that down the road the tax cuts will have to be paid for by reductions in social spending or a raid on the Social Security surplus -- either of which would likely hurt the poor more than the affluent.

-- David Corn (no relief@for.poor), March 12, 2001.

What is wrong with everyone (citizens and corporations) paying a fixed tax percentage that is the same for all income brackets? No deductions, no filing by a deadline, no credits etc.... You pay your 15% (or whatever percent) and thats it. Seems to me the gov would get more money. Who the hell would want to support a graduated tax system where your penalized for producing more? Its insane! If there were a fixed percentage then all of this talk about tax cuts would not exist.

-- Mikel (mej023@earthlink.net), March 12, 2001.

Yep,

A 15% flat tax, no deductions, kicking in after say a personal and dependent deduction of $15,000. That would be eminently fair, but would drive libs crazy.

-- libs luv taxes (moreinterpretation@ugly.com), March 12, 2001.

David Corn,

To paraphrase your own post, your reading comprehension skills are "pure horseshit".

I never claimed that ALL Americans benefitted from the Bush tax reduction plan, just those that pay income taxes.

You whining liberals must all aspire to be poor. Instead of moaning about how unfair it is that successful people only pay taxes at more than 2 1/2 times the rate of those in the bottom bracket, why don't you quit complaining and go out and try to find a way to move up into the higher tax brackets.

-- J (Y2J@home.comm), March 12, 2001.

J,

ALL Americans who pay taxes will NOT benefit equally from Bush's plan -- see above post. The wealthy get a 3.8 percent GAIN of income, the poorer folks a measly 0.6 percent -- those poorer folks who pay income taxes and get soaked on Social Security taxes get a measly 0.6 percent gain.

-- Welfare for the Rich (subsidize@rich.com), March 12, 2001.

Welfare for the Rich,

Did you go to the same school that David Corn did for reading comprehension?

I never claimed that ALL Americans who pay income taxes would "benefit equally" from Bush's plan, just that they would benefit from it.

It is becoming painfully clear why it is that whining liberals complain about the wealthy having more instead of going out and doing something that would help themselves to become wealthy. The job market must be severely limited when one is shackled by abysmal reading comprehension skills.

-- J (Y2J@home.comm), March 12, 2001.

J,

You are mistaken in claiming all people will benefit. Single people with an income tax bracket of $6,001 - $27,050 receive no percentage cut in the tax rate.

Besides, to claim that "All Americans benefit" conveniently overlooks the fact that the rich benefit the most and the poor benefit little. It's insane and shows how immoral you are to keep claiming that "we all benefit" while Bush is throwing a penny to the masses and gold coins to the wealthy.

Besides, in case you haven't noticed by now, Bush's tax plan provides no relief on the payroll tax. For most working Americans, the payroll tax – not the income tax – is the single largest tax they pay on wages. The payroll tax is currently producing a surplus in Social Security Trust Fund to the tune of billions of dollars a year; however, there is no payroll tax cut.

It does not take a rocket scientist to calculate that the average working man or woman is getting virtually no tax cut, while Bush’s wealthy friends will get the bulk of the proposed $1.6 trillion cut.

Why not address the discrepancy in distribution rates, J?

-- Welfare for the Rich (wealth@welfare.com), March 12, 2001.

Mikel:

You baffle me. You seem upset that Bush "stole the election" and rant about irresponsible Republican policies, and then you turn around and recommend one of the most extreme right-wing tax proposals going. I'll be glad to agree that a flat tax as you propose has a great deal to be said for it. But it is absolutely *ANATHEMA* to the Democrats! They would permit such a tax only over their dead bodies! Why, such a tax (as you admit) would reward productivity! No Democrat would allow such a thing. Productivity is to be *punished*, so that we can use the proceeds to reward the least productive. That's the Democrat's mantra!

As for all these arguments about percentages, I don't see what your problems are. If 10% of the people pay 90% of the taxes, then you can't cut taxes meaningfully *except* by cutting the taxes of those who actually pay them. The calculation that the top 1% of taxpayers would enjoy 43% of the cuts merely shows how distorted our "progressive" taxation has become by now. We could eliminate income tax altogether for the bottom 40% of wage earners and make almost no substantive change at all -- because over time, we have nearly eliminated income tax on these people, shoving nearly the entire burden onto the "rich".

-- Flint (flintc@mindspring.com), March 12, 2001.

Welfare, how much do single people with an income tax bracket of $6,001 - $27,050 pay in income taxes now?

Yes you are right, The wealthy get a 3.8 percent GAIN of income. How much do they pay now? 39% and Bush proposes it reduces to 33%. Now lets see for someone earning $200K instead of paying 78K they will pay 66K. 66K isn't enough punishment for the wealthy?

-- Maria (anon@ymous.com), March 12, 2001.

Welfare for the Rich,

You should really go back and read the thread again, for I have never claimed that "All Americans benefit". All Americans do not pay income tax, so how is it that all Americans would benefit from an income tax reduction plan?

I have claimed that all Americans who pay income tax will benefit. You claim that I am mistaken, in that, singles who earn between $6001 and $27,050 receive no benefit. I have read otherwise, but I may be mistaken on this point. Would you care to provide a link to your reference?

I am not "conveniently overlooking the fact that the rich benefit the most and the poor benefit little". In fact, I trumpet the fact. The wealthy pay the most, and the poor pay the least income tax. Why should tax relief be distributed any other way? The income tax rates are already sharply higher at the top (39.6%), than they are at the bottom (15%). You and your liberal brethren seem to want to steepen the slope even more. Where will you be satisfied? 60%? 70%? Probably not until the top bracket is 100%, for after all, who do the wealthy think that they are, keeping their wealth away from the starving masses? Eh, comrade?

It's insane and shows how socialistic you are to want the wealthy to foot more than their fair share of the bill. Bush should throw "gold coins to the wealthy and a penny to the masses", as that is an apt analogy for how the wealthy pay taxes compared to the poor.

You have the unmitigated gall to say, "Why not address the discrepancy in distribution rates, J?", while you completely ignore the outrageous discrepancy in the tax rates!

As another poster brought up, if we had a flat tax rate across the board, the income tax system would be fair, and you liberals wouldn't be arguing over how much the wealthy should be gouged.

-- J (Y2J@home.comm), March 12, 2001.

off.

Sorry.

-- J (Y2J@home.comm), March 12, 2001.

Flint: "Productivity is to be *punished*, so that we can use the proceeds to reward the least productive. That's the Democrat's mantra!"

Yes! The last time I saw Dick Gephardt on CSPAN, he was sitting cross-legged (like one of those Indian yogi characters) with a lot of freshman Democratic congressional reps. Tom Daschle was playing the flute, and Gephardt was leading them all in chanting:

Productivity is to be punished. Productivity is to be punished. Productivity is to be punished. Productivity is to be punished. Productivity is to be punished. Productivity is to be punished.

I swear! It's true! It happened just like Flint said! Except they left off the part about so that we can use the proceeds to reward the least productive... Maybe they were starting them out slow, 'cuz they were just freshman reps and all.

Dang! - wouldn't you know it - I forgot to put a tape in the VCR. Sorry, guys. You'll just have to take my and Flint's word on this one.

-- Break out the cookies and milk (aimless@national_raffle_association.org), March 12, 2001.

>>>ALL Americans who pay taxes will NOT benefit equally from Bush's plan -- see above post. The wealthy get a 3.8 percent GAIN of income, the poorer folks a measly 0.6 percent -- those poorer folks who pay income taxes and get soaked on Social Security taxes get a measly 0.6 percent gain.

Say, whaaa? Top rate now is 39.6, will go to 34%: That's a reduction of 14.something%

The bottom rate is now 15%, will go to 10%- a reduction of 33.3%

The poorest taxpayer benefits the most, with the biggest tax cut. Their cut is over twice as much as the highest rate!! Don't believe me? Ask that man- would you prefer a 15% tax cut, or a 33% cut?

So fess up, Mikel- how much extra did you contribute to the IRS in your 2000 tax return just to 'help the poor?' How much extra will you contribute to the IRS this year, after the cut passes, to 'help the poor.' Ha ha haaaaa.

-- Smilla (Sense@of.snow), March 12, 2001.

cookies:

Yes! I saw that same show. But you neglected to mention that, being a Democrat, Gephardt chose to weasel around the topic by using euphemisms. He was chanting "We need to place the tax burdon on the reach, who are best able to bear it. We need to help those who are most needy and target the benefits where they generate the most votes... oops, I mean, where they alleviate the most suffering."

If you set out to subsidize poverty, you must call it an "entitlement". If you want some people to pay much higher tax rates than others, you must call this "fair". You know the routine. So does Gephardt. Why pretend you don't speak the language, when you use it so fluently for the same purposes?

-- Flint (flintc@mindspring.com), March 12, 2001.

Flint: "Gephardt... was chanting 'We need to place the tax burdon on the reach, who are best able to bear it. We need to help those who are most needy and target the benefits where they generate the most votes... oops, I mean, where they alleviate the most suffering.'"

Damn, Flint! Here I thought you were telling a fact about the Democrats. Turns out you were just posting your opinion about the Democrats and saying it was a fact. I'm shocked! Shocked!

Are you sure you didn't see that on CSPAN???

-- Break out the cookies and milk (aimless@national_raffle_association.org), March 12, 2001.

Flint - I say fuck the democrats and the republicans! My own political leanings are towards the Libertarians. I do have to say though that one of the things that really irks me in relation to the Republican party is the apparent disregard that is exhibited towards people who are less well off than they are. I am really surprised to see lower and middle class people who purport to be Republicans and actually support a party that only benefits the filthy rich. (oh I forgot the gun issue) What I see in people like you Flint is a bunch of wannabe followers. (I guess thats what the really stupid do.)

-- Mikel (mej023@earthlink.net), March 13, 2001.

The Dems game plan (along with their usual coterie of backers - NOW, teachers unions, Jesse Jackson and complany, etc.) is to scream about this or that unfairness to an across-the-board tax cut, not in order to change it - but rather to STOP and tax cut whatsoever, for anyone.

Anything that has the possibility of constraining the growth of governmental control is just something libs cannot tolerate.

-- game plan (moreinterpretation@ugly.com), March 13, 2001.